Ring Incorporated's Income Statement for the Most Recent Month Is

Ring Incorporated's income statement for the most recent month is given below. $$\begin{array} { l l l l } & \text { Total } & \text { Store } P & \text { Store } Q \\\text { Sales } & £ 600,000 & £ 200,000 & £ 400,000 \\\text { Variable expenses } & \underline { 384,000 } & \underline { 144,000 } & \underline { 240,000 } \\\text { Contribution margin } & 216,000 & 56,000 & 160,000 \\\text { Traceable fixed expenses } & \underline { 152,000 } & \underline { 42,000 } & \underline { 110,000 } \\\text { Segment margin } & \underline { 64,000 } & \underline { £ 14,000 } & \underline { £ 50,000 } \\\text { Common fixed expenses } & \underline { 34,000 } & & \\\text { Net operating income } & \underline { £ 30,000 } & &\end{array}$$
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For each of the following questions, refer back to the original data. A proposal has been made that will lower variable costs in Store P to 65% of sales. However, this reduction can only be accomplished by a £16,000 increase in Store P's traceable fixed costs. If this proposal is implemented and sales remain constant, overall company net operating income should

A) remain the same.
B) decrease by £2,000.
C) increase by £2,000.
D) increase by £14,000.

Correct Answer:

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