please help me with the following questions
Footwear Stores Lid operates three stores in Malaysia area. A segmented profit statement for the company for the last quarter is given below: Footwear Stores Ltd Profit statement for the quarter ended 30th June 2017 Particulars Total Amount East Store Central Store West Store ($) Amount ($) Amount ($) Amount ($) Sales 4,000,000 800,000 2,000,000 1,200,000 Cost of goods sold 2,144,000 416,000 1,080,000 648,000 Gross margin 1,856,000 384,000 20,000 652,000 Operating expenses: Selling expenses 1,010,200 280,000 402,000 328,200 Administrative expenses 487,600 129,000 209,200 149,400 Net operating profit / loss 358,200 (25,000) 308,800 74,400 The East store has consistently shown losses over the past two years. For this reason, management is giving consideration to close the store. The company has retained 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 is as follows: Breakdown of selling expenses Particulars Total Amount East Store Central Store West Store ($) Amount ($) Amount ($) Amount ($) Sales salaries 304,000 89,000 1 15,000 100,000 Direct advertising 241,000 65,000 96,000 80,000 General advertising* 60,000 12,000 30,000 18,000 Store rent 345,000 95,000 140,000 1 10,000 Depreciation of store 21,200 6,000 8,000 7,200 fixtures Delivery salaries 27,000 9,000 9,000 9,000 Depreciation of delivery 12,000 4,000 4,000 4,000 equipment Total selling expenses 1,010,200 280,000 402,000 328,200 Allocated on the basis of sales Question 1 continued on page 2 Page 1 of 2Question 1 continued Breakdown of administrative expenses Particulars Total Amount East Store Central Store West Store ---- Store management 93,000 28,000 39,000 26,000 ---- General ofce salaries\"' 70,000 14,000 35,000 21 ,000 Insurance on xtures and 30,500 10,000 10,000 inventory Utilities 1 30,000 38,000 50,000 42,000 Em ployment taxes 74,100 21 ,000 29,700 23,400 expenses* exaenses * Allocated on the basis of sales (b) The lease on the building housing the East store can be broken with no penalty. (c) The xtures being used in the East store would be transferred to the other two stores if the East store were closed. (d) The general manager of the East store would be retained and transferred to another position in the company if the East store were closed. She would be lling a position that would othenlvise be lled by hiring a new employee at a salary of $14,000 per quarter. The general manager of the East store would be retained at her normal salary of $15,000 per quarter. All other employees in the store would be discharged. (e) The company has one delivery crew that serves all three stores. One delivery person could be discharged if the East store were closed. This person's salary is $6,000 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) One-fourth of the insurance in the East store is on the store's xtures. (g) The 'General ofce salaries' and 'General ofce other expenses' relate to the overall management of Footwear Stores. If the East store were closed, one person in the general ofce could be discharged because of the decrease in overall workload. This person's salary is $8,000 per quarter. (h) The employment taxes will reduce by $16,000 due to discharging employees. Required: ( 1) Prepare a schedule showing the change in revenues and expenses and the impact on the company's overall prot that would result if the East store were closed. Assuming that the store space can't be sub-leased, what recommendation would you make to the management of Footwear Stores? (2) Assume that if the East store were closed, at-least one-fth of its sales would transfer to the West store, due to strong customer loyalty to Footwear Stores. The West store has ample capacity to handle the increased sales. You may assume that the increased sales in the West store would yield the same gross margin rate as present sales in West store. What effect would these factors have on your recommendation concerning the East store? Show all computations to support your
