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POWER MUSIC Fifth Avenue Store Partial Income Statement The Sales Cost of goods sold. $1,950,000 1,680,000 s 270,000 Gross margin it 1 Costs Rent 48,300 7,500 55,200 22,500 60.000 13,500 Depreciation . Administration and general office Interest for inventory carrying costs'. Total costs 360,000 Loss $ (90,000) Additional computations: "These costs would be saved if the store was closed The rent would be saved if the store was closed. eAssessed annually on the basis of average inventory on hand each month. 8.5 percent of cost of departmental equipment. The equipment has no salvage value, and Tota Power Music would incur no costs in scrapping it. Req To Allocated on the basis of store sales as a fraction of total company sales. Management estimates that 10% of these costs allocated to the Fifth Avenue store could be saved if the store was closed Based on average inventory quantity multiplied by the company's borrowing rate for three- month loans. a. b. c. Analysis of these results has led management to consider closing the Fifth Avenue store Members of the management team agree that keeping the Fifth Avenue store open is not s sential to maintaining good customer relations and supporting the rest of the company's bus- ness. In other words, eliminating the Fifth Avenue store is not expected to affect the amoun of business done by the other stores Required What action do you recommend to Power Music's management? Write a short report to mat agement recommending whether or not to close the Fifth Avenue store. Include the reasons for your recommendation. 4-56. Closing a Plant You have been asked to assist the management of Ironwood Corporation in arriving at certar LO 4-4)