Denray Deli has two locations, downtown and in the town mall.During March, the company reported total net income of $144,000 with sales of $1,200,000.The contribution margin in the downtown store was 30%.The contribution margin in the town mall store is $80,000.Total fixed costs are allocated as $110,000 in the downtown store and $90,000 in the town mall location.How much are sales at the downtown location?
A)$880,000
B)$1,146,667
C)$254,000
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

We can use the formula:
Net Income = Sales - Variable Costs - Fixed Costs
Let's first find the total contribution margin:
Total contribution margin = $144,000 + $110,000 + $90,000 - $80,000 = $264,000
We are given that the contribution margin in the downtown store is 30%, so we can write:
Contribution margin from downtown store = 0.3(total contribution margin)
Contribution margin from downtown store = 0.3($264,000)
Contribution margin from downtown store = $79,200
Now we can use the formula to find the sales at the downtown location:
Net Income from downtown store = Sales from downtown store - Variable Costs from downtown store - Fixed Costs allocated to downtown store
$79,200 = Sales from downtown store - 0.7(Sales from downtown store) - $110,000
$79,200 + $110,000 = 0.3(Sales from downtown store)
$189,200 = 0.3(Sales from downtown store)
Sales from downtown store = $630,667
Therefore, total sales = sales from downtown store + sales from town mall store = $630,667 + $569,333 = $1,200,000
Thus, the answer is A) $880,000.

Denray Deli Has Two Locations, Downtown and in the Town