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Quality Co. has retail outlets in 3 cities, Florence, Milan and London. The Milan store...

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Accounting

Quality Co. has retail outlets in 3 cities, Florence, Milan and London. The Milan store is losing money and management is considering closing the store. If they close the store they would still incur $50,000 per year in fixed costs that they cannot eliminate.

Florence Milan London Total

Sales $800,000 $400,000 $700,000 $1,900,000

Variable costs 300,000 320,000 300,000 920,000

Contribution margin 500,000 80,000 400,000 980,000

Fixed costs 200,000 150,000 200,000 550,000

Net Income $300,000 $(70,000) $200,000 $430,000

Should Quality eliminate the Milan store?

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