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 30TotalNorth

StoreSouth

StoreEast

StoreSales$4,300,000$860,000$1,720,000$1,720,000Cost of goods sold2,365,000510,000909,000946,000Gross margin1,935,000350,000811,000774,000Selling and administrative expenses:Selling expenses843,000244,400321,500277,100Administrative expenses448,000119,000170,400158,600Total expenses1,291,000363,400491,900435,700Net operating income (loss)$644,000$(13,400)$319,100$338,300

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:

TotalNorth

StoreSouth

StoreEast

StoreSelling expenses:Sales salaries$250,200$67,000$75,800$107,400Direct advertising178,00064,00085,00029,000General advertising*64,50012,90025,80025,800Store rent290,00082,000115,00093,000Depreciation of store fixtures22,5005,9007,3009,300Delivery salaries24,9008,3008,3008,300Depreciation of delivery

equipment12,9004,3004,3004,300Total selling expenses$843,000$244,400$321,500$277,100

*Allocated on the basis of sales dollars.

TotalNorth

StoreSouth

StoreEast

StoreAdministrative expenses:Store managers' salaries$89,500$27,500$36,500$25,500General office salaries*64,50012,90025,80025,800Insurance on fixtures and inventory38,00011,40015,50011,100Utilities84,13528,34527,64028,150Employment taxes64,36517,35521,96025,050General office?other*107,50021,50043,00043,000Total administrative expenses$448,000$119,000$170,400$158,600

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.
2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.
3. 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 $11,900 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,900 per quarter. All other managers and employees in the North store would be discharged.
4. 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 $5,300 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.
5. The company pays employment taxes equal to 15% of their employees' salaries.
6. One-third of the insurance in the North Store is on the store's fixtures.
7. 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 $6,450 per quarter.

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?

Check my work 2 Exercise 11-2 Dropping or Retaining a Segment (LO11-2] 125 The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and points expenses for the past quarter follow Cart Mountain Racing Total $ 926,040 $261,604 Variable manufacturing and polling expenses 477,080 116,040 158,080 Contribution margin 147,030 205,030 #7,030 Fixed expenses: Advertising, triomble 20, TH Depreciation of special equipment 43.390 7.40 Salaries of product-line managers 115, 7 Allocated common flood expert" 185,200 $2,680 51,030 Total fixed expenses 414,190 134,709 171, 10 Not operating income (loss) 34,909 $(26, 360] "Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out 2 of 8 Next >Chapter 11 Homework Help Save & Tah Submit Check my work mode : This shows what is correct or incorrect for the work you have completed so far It does not indicate completion. Return to question 8 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. Suporter Markets, Inc. 1.25 Income Statement points For the Quarter Ended September 10 North South Store Cost of goods sold 2.965, GO 510. 60 Gross margin Selling and administrative expenses: Selling upmis 144, 404 277, IM Administrative expenpes 170,404 Total expenses 435,720 Net operating income (loss) $(13,402) $ 319,109 The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the More. The company has siked 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: Grum HJI 8 a. The breakdown of the selling and administrative expenses that are shown above is as follows 125 Worth South Score points Storm selling expenseri Sales salaries $ 75, 804 $107,404 Direct advertising donoral advertising 84,900 12,104 25, 804 25, But Store rent Dupreciation of store fixtures 22,504 Delivery salaries 34, HIM Dupreciation of delivery 4, 104 4, J04 4, JH Total polling expenses $244, 400 $521, 904 $277, 104 "Allocated on the basis of sales dollars,Artum to question 8 North South Cart Total Start Ad Inistrative expener: Score managers' salaries 1 85, 508 $ 27, 508 1 96,508 1 25,508 125 General office polarion" Insurance on fixtures and inventory 11,404 15,508 11, 104 points 20. 345 64, 965 37. 142 Employment towns 17,155 21,960 25, 040 General office others 107, 509 21, 502 Total administrative expenses "Allocated on the basis of sales dollars. b. The lease on the building housing the North Store can be broken with no penalty c. The fixtures being used in the North Store would 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 otherwise be filed by hiring a new employee at a salary of $11,900 per quarter, The general manager of the North Store would continue to com her normal salary of $12.900 per quarter, All other managers and employees in the North 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 $5.300 per quarter. The delivery equipment would be distributed to the other stores. The equipment HJI Next >