I have the answer key here. Please explain why we do not includ GENERAL EXPENSES- OTHER in the calculation because if we discharge the downtown store, these expenses will no longer inccur?

Chapter 12 Relevant Costs for Decision Making Required: 1 Determine the profit for each 480-gram T-bone steak processed further into filet mignon and New York-cut steaks 2. Would you recommend that the T-bone steaks be sold as is or processed further? Why? (Prepared from a situation suggested by Professor John W. Hardy) PROBLEM 12-23 Close or Retain a Store ILO21 The Tilots Corporation's segmented absorption costing income statement for the last quarter for its three metropolitan stores is given below Total $2.500000 1450.000 1050000 Uptown Store 5900.000 50.000 387000 Downtown Store 5600.000 372.000 228000 Westpark Store SLO00.000 565.000 35000 Sales Cost of goods sold Gross mergin...... Seling and administrative penises Seling expenses Direct advertising General advertising Sales salaries Delvery salaries Depreciation of store futures Depreciation of delivery equipment.... Total selling expenses Administrative openses Store management salaries General office salaries 118.500 20.000 157000 30000 26.000 46.950 40.000 1200 52000 1000 70.000 18300 36.000 4800 16000 2000 65.000 8800 2.500 8.000 80000 1000 80 000 19850 Store rert. 27000 61450 9000 206500 9.000 18.600 9000 229 350 63.000 50000 89.800 20.000 18.000 31000 8000 22.000 21200 25.000 20.000 31600 25.500 36.000 8.000 12000 9000 0.200 8500 3.800 Insurance on futures and inventory... Employee benefits General office expenses other Total administrative expenses Total operating expenses Operating income foss) *Alocated on the basis of sales dollars 25.000 289300 903.750 3 16250 9,000 98.000 304500 $ 82.500 6.000 3200 261000 $(33000) 10000 108.900 338.250 $_96750 Management is very concerned about the Downtown Stores inability to show a profit and consideration is being given to closing the store. The company has asked you recommend a course of action. Additional information available on the store is provided below 4. The manager of the store has been with the company for many years he would be re- tained and transferred to another position in the company if the Downtown Store were closed. His salary is $6,000 per month, or $18.000 per quarter. If the store were not closed, a new employee would be hired to fill the other position at a salary of $5.000 per month b The lease on the building housing the Downtown Store can be broken with no penalty The fixtures being used in the Downtown Store would be transferred to the other two stores if the Downtown Store were closed. d Employee benefits are 12% of salaries. A single delivery crew serves all three stores. One delivery person could be discharged if the Downtown Store were closed this person's salary amounts to $7.000 per quarter. The c. Chapter 12 Relevant Costs for Decision Making & delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but it does eventually become obsolete. f One-third of the Downtown Store's insurance relates to its fixtures. The general office salaries and other expenses relate to the general management of the Tilots Corporation. The employee in the general office who is responsible for the Downtown Store would be discharged if the store were closed. This employee's compensa- tion amounts to $8.000 per quarter. Required: 1. Prepare a schedule showing the change in revenues and expenses and the impact on the overall company operating income that would result if the Downtown Store were closed. 2. Based on your computations in (1) above, what would you recommend to the management of the Tilots Corporation? 3. Assume that if the Downtown Store were closed, sales in the Uptown Store would increase by $200,000 per quarter due to loyal customers shifting their buying to the Uptown Store. The Uptown Store has ample capacity to handle the increased sales, and its gross margin is 43% of sales. What effect would these factors have on your recommendation concerning the Downtown Store? Show computations. $(228,000) $36,000 45,000 7,000 65,000 1. The simplest approach to the solution is: Gross margin lost if the store is closed ...... Less costs that can be avoided: Direct advertising....... Sales salaries ...... Delivery salaries..... Store rent.......... Store management salaries (new employee would not be hired to fill vacant position at another store) ............. General office salaries . Utilities.......... Insurance on inventories (2/3 $9,000) ... Employee benefits*... Decrease in company operating income if the Downtown Store is closed .. *Salaries avoided by closing the store: Sales salaries...... Delivery salaries....... Store management salaries... General office salaries Total salaries Employee benefit rate Employee benefits avoided 15,000 8,000 27,200 6,000 9,000 218,200 $( 9,800) $45,000 7,000 15,000 8,000 75,000 x 12% $ 9,000