PROBLEM 12-23 Close or Retain a Store LO2 Thrifty Markets, Inc., operates the stores in a large mopolitan area. The company's absorption costing income statement for the last quarter is given below: 22.500.000 1.450.000 1,050,000 5900,000 513.000 387.000 $100,000 372.000 228,000 $1.000.000 SAS 000 05.000 20.000 8.000 Cost of goods sold Gross margin Selling and adentrative expenses Selling expenses Direct advertising General advertising Sales salaries. Delivery sales Storrent Depreciation of store factures Depreciation of delivery equipment Total selling expenses Administrative expenses Store management salaries General office salaries 118.500 20,000 157.000 30,000 215,000 46.850 7.200 62.000 10.000 70.000 18,300 36.000 4.800 45,000 10,000 65.000 8.800 10.000 10.000 19.50 27.000 514,650 9,000 205,500 9.000 178,600 9.000 229350 63,000 50,000 39,800 20.000 18.000 31.000 18.000 12.000 20.000 31.000 25.500 38.000 6,000 12.000 10.200 13,800 Insurance on fidures and Inventory Employment General ottice expenses or Total administrative expenses Total operating expenses Not operating income (loss) 10.000 TO SOO 25.000 280,300 9070 146,250 0.000 90.000 304500 $ 82,500 6.000 2.400 261 000 $ 33,000 $ 0.750 "Allocated on the basis of sales da Management is very conocemod about the Downtown Store'sinability to show a proli, und.com ration is being given to closing the tree. The company has asked you to make a commendances what course of action should be taken. The following addicional information is wvailable about the The manager of the store has been with the company for many years, he would be retained and transferred to other position in the company if there were closed. His salary is C 56,000 per month, or $1,000 per quarter of the more were not cw employee would be hired to fill the other positional salary of $5,000 per month These co the building housing the Downtown Store can be boken with a The fixtures being used in the Downtown Store would be transfered to the other two the Downtown Store were closed The company's employmest fantes are 126 of salaries A segle delivery crew serves all the One delivery person could be discharged Downtown Store were closed this person's salary most $7.000 per quare They equipment would be distributed to the other so. The girl does not how use, but it does eventually become obsolet One-third of the Downtown Score's insurance is The general office salaries and other cases to the great of The Mukes, Inc. The employee in the general office who is responsible for the Down would be discharged if there were closed. This employee's composto 58.000 per quarter Regard 1. Propea chedule showing the change is events and expenses and the impact on the over all company operating income that would result if the Downtown So we closed 2 Based on your composin () above, who recommendatie wold you to the man Age of Thrifty Market, Inc.? 3. Assume that if the Downtown Store were closed, sales is the poweStore would increase by $200,000 per quarter due to loyal customers shifting i lying to the Uptown Sue The Uptown Store has ample capacity to handle the increased lead its grous magis sales. What effect would these factors have on your commendation concerning the towa Store Show computation 12.000 10 200 1300 Employment General office expenses other Totalitative expenses Total operating expenses Not operating income oss) 95.000 200 300 903.750 165 250 9.000 000 300 500 $ 82 500 6.000 2.400 251 000 $33.000 10.000 TO 100 $0.750 Alocated on the basis of dollars. Management is very concelhout the Downtown Store'sinability to show profit, and.com estion is being given to closing the store. The company has asked you to make a commento what course of action should be taken. The following adical information is available about the store The manager of the store has been with the company for many years, he would be med and transferred to another position in the company if the store were closed. His salary is d $6,000 per month, or $18,000 per quarter. If the store were not closed, new employee would be hired to fill the other position at a salary of 55.000 per month The lose 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 The company's employment taxes are 12% of salaries A single delivery crew serves all the stores. One delivery person could be discharged if the Downtown Store were closed this person's lary amounts to $7,000 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear cut through use, but it does eventually become obiet One-third of the Downtown Store's insurance relates to its futures. 8. The geral office salaries and other specs relate to the pracral management of Thitty Markets, Inc. The employee in the gracral oflice who is responsible for the Downtown Store would be discharged if the store. were closed. This employee's compensation amonto 58.000 per quarter Required 1. Prepare a schedule showing the change in revenue and expenses and the impact on the over all company net operating income that would result if the Downtown Store were closed. 2 Based on your computations in (1) above, what recommendation would you make to the man agement of Thrifty Markets, Inc.? 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 increasedules, and its roumain is of sales. What effect would these factors have on your recommendation concerning the Down town Store Show.computations