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 Total North Store South Store East Store Sales $ 3,300,000 $ 760,000 $ 1,320,000 $ 1,220,000 Cost of goods sold 1,815,000 433,000 711,000 671,000 Gross margin 1,485,000 327,000 609,000 549,000 Selling and administrative expenses Selling expenses 823,000 234,400 316,500 272,100 Administrative expenses 398,000 109,000 155,400 133,600 Total expenses 1,221,000 343,400 471,900 405,700 Net operating income (loss) $ 264,000 $ (16,400 ) $ 137,100 $ 143,300 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 The breakdown of the selling and administrative expenses that are shown above is as follows Total North Store South Store East Store Selling expenses Sales salaries $ 227,200 $ 65,500 $ 81,800 $ 79,900 Direct advertising 182,000 54,000 75,000 53,000 General advertising 49,500 11,400 19,800 18,300 Store rent 315,000 88,000 123,000 104,000 Depreciation of store fixtures 17,500 4,900 6,300 6,300 Delivery salaries 21,900 7,300 7,300 7,300 Depreciation of delivery equipment 9,900 3,300 3,300 3,300 Total selling expenses $ 823,000 $ 234,400 $ 316,500 $ 272,100 Allocated on the basis of sales dollars Total North Store South Store East Store Administrative expenses Store managers' salaries $ 74,500 $ 22,500 $ 31,500 $ 20,500 General office salaries 49,500 11,400 19,800 18,300 Insurance on fixtures and inventory 28,000 8,400 10,500 9,100 Utilities 107,535 31,695 39,540 36,300 Employment taxes 55,965 16,005 21,060 18,900 General officeother 82,500 19,000 33,000 30,500 Total administrative expenses $ 398,000 $ 109,000 $ 155,400 $ 133,600 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 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 $10,400 per quarter The general manager of the North Store would continue to earn her normal salary of $11,400 per quarter All other managers and employees in the North store would be discharged 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 $4,300 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 The company pays employment taxes equal to 15 of their employees' salaries One third of the insurance in the North Store is on the stores fixtures The General office salaries and General officeother 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 persons compensation is $5,700 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 the North Store 4 Assuming that the North Store's floor space cant be subleased, would you recommend closing the North Store 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 how much employee salaries will the company avoid if it closes the North Store Employee salaries How much employment taxes will the company avoid if it closes the North Store Employment taxes What is the financial advantage (disadvantage) of closing the North Store (Enter any disadvantages as a negative value ) Financial advantage (disadvantage) 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 less Financial advantage (disadvantage)

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 07, 2024

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

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
	Total		North Store			South Store		East Store
Sales	$	3,300,000	$	760,000		$	1,320,000	$	1,220,000
Cost of goods sold		1,815,000		433,000			711,000		671,000
Gross margin		1,485,000		327,000			609,000		549,000
Selling and administrative expenses:
Selling expenses		823,000		234,400			316,500		272,100
Administrative expenses		398,000		109,000			155,400		133,600
Total expenses		1,221,000		343,400			471,900		405,700
Net operating income (loss)	$	264,000	$	(16,400	)	$	137,100	$	143,300

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:

The breakdown of the selling and administrative expenses that are shown above is as follows:

	Total		North Store		South Store		East Store
Selling expenses:
Sales salaries	$	227,200	$	65,500	$	81,800	$	79,900
Direct advertising		182,000		54,000		75,000		53,000
General advertising*		49,500		11,400		19,800		18,300
Store rent		315,000		88,000		123,000		104,000
Depreciation of store fixtures		17,500		4,900		6,300		6,300
Delivery salaries		21,900		7,300		7,300		7,300
Depreciation of delivery equipment		9,900		3,300		3,300		3,300
Total selling expenses	$	823,000	$	234,400	$	316,500	$	272,100

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store managers' salaries	$	74,500	$	22,500	$	31,500	$	20,500
General office salaries*		49,500		11,400		19,800		18,300
Insurance on fixtures and inventory		28,000		8,400		10,500		9,100
Utilities		107,535		31,695		39,540		36,300
Employment taxes		55,965		16,005		21,060		18,900
General officeother*		82,500		19,000		33,000		30,500
Total administrative expenses	$	398,000	$	109,000	$	155,400	$	133,600

*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.
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 $10,400 per quarter. The general manager of the North Store would continue to earn her normal salary of $11,400 per quarter. All other managers and employees in the North store would be discharged.
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 $4,300 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.
The company pays employment taxes equal to 15% of their employees' salaries.
One-third of the insurance in the North Store is on the stores fixtures.
The General office salaries and General officeother 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 persons compensation is $5,700 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 the North Store?

4. Assuming that the North Store's floor space cant be subleased, would you recommend closing the North Store?

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?

how much employee salaries will the company avoid if it closes the North Store?

Employee salaries

How much employment taxes will the company avoid if it closes the North Store?

Employment taxes

What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.)

Financial advantage (disadvantage)

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 less