Sparta Fashions owns four clothing stores, where it sells a wide range of women's fashions, from...

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Sparta Fashions owns four clothing stores, where it sells a wide range of women's fashions, from casual attire to formal wear. In addition, it rents formal wear and gowns for special occasions. At the end of last year, the financial statements showed that although Sparta Fashions as a whole was comfortably profitable, the Downtown store had shown a substantial loss. The following is the income statement for the Downtown Store store for year just ended: SPARTA FASHIONS Downtown Store Store-Level Income Statement Sales Cost of goods sold Gross margin Costs: $ 1,152,500 965,000 $ 187,500 Salaries, wages, and commissionsa Leaseb $ 93,350 38,565 State taxes Insurance on inventory 4,205 46,360 Depreciation Administration and general office 12,455 41,000 Interest for inventory carrying costsf Total costs 7,505 Loss 243,440 $ (55,940) Additional Information: a These costs would be saved if the store were closed. b The lease is cancellable and would be saved if the store were closed. * Assessed annually on the basis of average inventory on hand each month. 12 percent of cost of departmental equipment. The equipment has no salvage value, and Sparta Fashions would incur no costs in scrapping it. *Allocated on the basis of store sales as a fraction of total company sales. Management estimates that 15 percent of these costs allocated to the Fifth Avenue store could be saved if the store were closed. f Based on average inventory quantity multiplied by the company's borrowing rate for three-month loans. Sparta Fashions owns four clothing stores, where it sells a wide range of women's fashions, from casual attire to formal wear. In addition, it rents formal wear and gowns for special occasions. At the end of last year, the financial statements showed that although Sparta Fashions as a whole was comfortably profitable, the Downtown store had shown a substantial loss. The following is the income statement for the Downtown Store store for year just ended: SPARTA FASHIONS Downtown Store Store-Level Income Statement Sales Cost of goods sold Gross margin Costs: $ 1,152,500 965,000 $ 187,500 Salaries, wages, and commissionsa Leaseb $ 93,350 38,565 State taxes Insurance on inventory 4,205 46,360 Depreciation Administration and general office 12,455 41,000 Interest for inventory carrying costsf Total costs 7,505 Loss 243,440 $ (55,940) Additional Information: a These costs would be saved if the store were closed. b The lease is cancellable and would be saved if the store were closed. * Assessed annually on the basis of average inventory on hand each month. 12 percent of cost of departmental equipment. The equipment has no salvage value, and Sparta Fashions would incur no costs in scrapping it. *Allocated on the basis of store sales as a fraction of total company sales. Management estimates that 15 percent of these costs allocated to the Fifth Avenue store could be saved if the store were closed. f Based on average inventory quantity multiplied by the company's borrowing rate for three-month loans.

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To determine whether or not Sparta Fashions should close its Downtown Store based on the income statement provided we need to evaluate which costs wou... View the full answer