Question 1How much employee salaries will the company avoid if it closes the North Store?
Question 2How much employment taxes will the company avoid if it closes the North Store?
question 3What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.)
question 4Assuming that the North Store's floor space cant be subleased, would you recommend closing the North Store?
question 5 Assume that the North Store's floor space cant 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? (Enter any "disadvantages" as a negative value.)
Show more
| |
| | | Financial advantage (disadvantage) | not attempted | |
Problem 12-26 Close or Retain a Store (LO12-2] 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 North South East Total Store Store Store Sales $4,400,000 $880,000 $1,760,000 $1,760,000 Cost of goods 2,420,000 , 525,000 927,000 968,000 sold Gross margin1,980,000 355,000 833,000 792,000 Selling and administrative expenses: Selling 845,000 245,400 322,000 277,600 expenses Administrative 453,000 120,000 171,900 161,100 expenses Total expenses 1,298,000 365,400 493,900 438,700 Net operating $ 682,000 $ (10,400) $ 339,100 $ 353,300 income (loss) 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: 1. The breakdown of the selling and administrative expenses that are shown above is as follows: North South East Total Store Store Store Selling expenses: Sales $243,600 $ 65,400 $ 73,400 $ 104,800 salaries Direct advertising 179,000 65,000 86,000 28,000 General ut 66,000 13,200 26,400 26,400 advertising* Store rent 295,000 83,000 116,000 96,000 Depreciation of store 23,000 6,000 7,400 9,600 fixtures Delivery 25,200 8,400 8,400 8,400 salaries Depreciation of delivery 13,200 4,400 4,400 4,400 equipment Total selling $ 845,000 $245,400 $322,000 $277,600 expenses *Allocated on the basis of sales dollars. North South East Total Store Store Store Administrative expenses: Store managers' $ 91,000 $ 28,000 $ 37,000 $ 26,00 salaries General office 66,000 13,200 26,400 26,40 salaries* Insurance on fixtures and 39,000 11,700 16,000 11,30 inventory Utilities 83,130 27,850 26,720 28,56 Employment 63,870 17,250 21,780 24,84 taxes General 110,000 22,000 44,000 44,00 office-other* Total administrative $ 453,000 $120,000 $171,900 $ 161,10 expenses *Allocated on the basis of sales dollars. >. The lease on the building housing the North Store can be broken with no penalty. .. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed. 1. 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 $12,200 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,200 per quarter. All other managers and employees in the North store would be discharged. 2. 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 $5,400 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. J. One-third of the insurance in the North Store is on the store's fixtures. 1. 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 $6,600 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 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? Answer is not complete. 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 103,000 Required 1 Required 2 >
