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Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter
Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below: Superior Markets, Inc. Income Statement For the Quarter Ended September 30 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses North South East Total $3,780,000 Store $907,200 Store $1,512,000 Store $1,360,800 2,088,072 508,032 831,600 748,440 1,691,928 399,168 680,400 612,360 1,029,420 291,564 396,900 340,956 482,580 133,560 190,134 158,886 Total expenses 1,512,000 425,124 587,034 499,842 Net operating income (loss) $ 179,928 $(25,956) $ 93,366 $ 112,518 The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use: a. The breakdown of the selling and administrative expenses that are shown above is as follows: North South East a. The breakdown of the selling and administrative expenses that are shown above is as follows: Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses *Allocated on the basis of sales dollars. Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses *Allocated on the basis of sales dollars. Total North Store South Store East Store $ 301,140 $ 88,200 $112,140 $100,800 235,620 64,260 90,720 80,640 56,700 13,608 22,680 20,412 378,000 107,100 151,200 119,700 20,160 5,796 7,560 6,804 26,460 8,820 8,820 8,820 11,340 3,780 3,780 3,780 $1,029,420 $291,564 $396,900 $340,956 Total North Store South Store East Store $ 88,200 63,000 $ 26,460 15,120 $ 37,800 $ 23,940 25,200 22,680 31,500 9,450 11,340 10,710 133,560 39,060 50,400 44,100 71,820 20,790 27,594 23,436 94,500 22,680 37,800 34,020 $482,580 $133,560 $190,134 $158,886 b. The lease on the building housing the North Store can be broken with no penalty. c. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed. d. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $13,860 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,120 per quarter. All other managers and employees in the North store would be discharged. e. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person's salary is $5,040 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete. f. The company pays employment taxes equal to 15% of their employees' salaries. g. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries" and "General office-other" relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's compensation is $7,560 per quarter. Required: 1. How much employee salaries will the company avoid if it closes the North Store? 2. How much employment taxes will the company avoid if it closes the North Store? 3. What is the financial advantage (disadvantage) of closing the North Store? 4. Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? 5. Assume that the North Store's floor space can't be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How much employee salaries will the company avoid if it closes the North Store? Employee salaries Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How much employment taxes will the company avoid if it closes the North Store? Employment taxes Required 1 Required 3 >
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