SHOW ALL WORK.
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Hai Markets, Inc., operates three stores in a large metropolitanarea. A segmented absorption costing income statement for the company for the last quarter is given below: Hai Markets, Inc. Income Statement For the Quarter Ended September 30 North Store Total South East $1,340,000 1,220,000 737,000 603,000 Sales Cost of goods sold Gross margin $3,420,000 860,000 1,889,600 481,600 1,530,400 378,400 950,700 671,000 549,000 315,400 Seling and administrative expenses: Selling expenses: Administrative expenses Total expenses 359,100 276,200 478,360 135,780 183,920 158,660 474,060 74,940 543,020 1,429,060 411,980 Net operating income 101,340 ($33,580) 59,980 (loss) The North Store has consistently shownlosses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendationas to whether the store should be closed or kept open. The followingadditional information is available for your use: a. The breakdown of the selling and administrativeexpenses is as follows North South StoreEast Store Store 84,000$103,000 Selling expenses: Total $281,000 208,000 $94,000 71,000 18,300 102,000 9,600 Sales salaries Direct advertising General advertising 51,300 Store rent Depreciation of store 27,900 fixtures Deliverysalaries Depreciation of delivery equipment 58,000 12,900 92,000 8,800 79,000 20,100 127,000 ,500 321,000 14,000 6,500 42,000 19,500 14,000 14,000 6,500 6,500 Total selling expenses $950,700 $276,200 $359,100$315,400 Allocated on the basis of sales dollars. Administrativeexpenses: Total North StoreSouth Store East Store Store management salaries 91,000 28,000 General office salaries Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses478,360135,780 $37,000 $26,000 24,400 12,500 12,000 17,200 9,600 68,400 34,100 26,800 47,000 42,000 23,760 33,500 30,500 $158,660 127,000 72,360 85,500 38,000 21,480 21,500 27,120 $183,920 *Allocated on the basis of sales dollars. b. The lease on the building housing the North Store can be brokenwith no penalty c. The fixtures being used in the North Storewould be transferred to the other two stores if the North Store were closed d.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 otherwisebe filled by hiring a new employeeat a salary of $16,200 per quarter. The general manager of the North Store would be retained at her normal salary of $17,200 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 North Store were closed. This person's salary is $11,000 perquarter. The delivery equipment would be distributed to the other stores. The equipment does not wear outthrough use, but does eventually become obsolete. f. The company's employmen t taxes are 15% of salaries. g. One-third of the insurance in the North Store is on the store'sfixtures. h.The "General office salaries" and "General office-other" relateto the overall management of Hai Markets, Inc. If the North Store were closed, one person in the general office couldbe discharged because of the decrease in overall workload. This person's compensation is $8,600 per quarter Required 1. Prepare a schedule showing the change in revenues and expenses and the impact on the company's overall net operating income that would result if the North Store were closed. (Any losses/reductions should be indicated by a minus sign.) Costs that can be avoided: Total costs that can be avoided 2. Based on your computations in (1) above, whatrecommendation would you make to the management of Hai Markets, Inc? Should the North Store be closed,or. should it NOT be closed? 3. Assume that if the North Store were dosed, at least one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Hai Markets. The East Store has enough capacity to handle the increased sales. You may assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in that store. a. Calculate the net advantage of closing the North Store. (Any reductions or outflows should be indicated by a minus sign.) Gross margin lost if the North Store is closed Gross margin gained from the East Store Net operating (loss) in gross margin Less costs that can be avoided if the North Store is closed Net advantage (disadvantage) of closing the North store b. What recommendation would you make to the management of Hai Markets, Inc.? Should the North Store be closed, or should it NOT be closed
