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Question # 3 Superior Markets, Incorporated, operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the
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Superior Markets, Incorporated, 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, Incorporated
Income Statement
For the Quarter Ended September
Total North Store South Store East Store
Sales $ $ $ $
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expenses
Administrative expenses
Total expenses
Net operating income loss $ $ $ $
The North Store has consistently shown losses over the past two years, so management is considering closing this store.
Detailed breakdown of the selling and administrative expenses shown above is as follows:
Total North Store South Store East Store
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.
Total North Store South Store East Store
Administrative expenses:
Store managers' salaries $ $ $ $
General office salaries
Insurance on fixtures and inventory
Utilities
Employment taxes
General officeother
Total administrative expenses $ $ $ $
Allocated on the basis of sales dollars.
a The North Stores rental agreement can be broken with no penalty.
b The North Stores fixtures would be transferred to the other two stores if it were closed.
c The North Stores general manager would be transferred to another position in the company if it were closed. She would fill a position that otherwise would have required hiring a new employee at a salary of $ per quarter. The general manager of the North Store would continue to earn her normal salary of $ per quarter. All other managers and employees in the North Store would be discharged.
d The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This persons salary is $ per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use.
e The company pays employment taxes equal to of their employees' salaries.
f Onethird of the North Stores insurance relates to its fixtures.
g The General office salaries and General officeother relate to the overall management of Superior Markets, Incorporated. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This persons compensation is $ per quarter.
Required:
How much employee salaries will the company avoid if it closes the North Store?
How much employment taxes will the company avoid if it closes the North Store?
What is the financial advantage disadvantage of closing the North Store?
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