Question & Answer: For a retail outlet chain with multiple stores, which of the following statements would be correct?…..

For a retail outlet chain with multiple stores, which of the following statements would be correct?

Select one:

a. Stores which have a net loss should be discontinued.

b. Stores with a negative contribution margin should be discontinued.

c. Stores with a negative contribution margin should be discontinued provided such discontinuation will not cause an increase in sales at other stores.

d. Stores with a negative contribution margin should not be discontinued if such discontinuation will cause profitable stores to bear a portion of the unprofitable store’s overhead.

Expert Answer

 

For a retail outlet chain with multiple stores, which of the following statements would be correct?

Ans: B. Stores with a negative contribution margin should be discontinued.

Negative contribution Margin means a company is experiencing a loss for each unit of product sold. With the increase in sales, results only in increase in total losses for the company.

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