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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 $ 4,140,000 $ 1,100,000 $ 1,580,000 $ 1,460,000
Cost of goods sold 2,288,000 616,000 869,000 803,000

Gross margin 1,852,000 484,000 711,000 657,000

Selling and administrative expenses:
Selling expenses: 1,179,900 353,000 434,700 392,200
Administrative expenses 622,120 182,100 232,640 207,380

Total expenses 1,802,020 535,100 667,340 599,580

Net operating income (loss) $ 49,980 $ (51,100 ) $ 43,660 $ 57,420

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:

a.

The breakdown of the selling and administrative expenses is as follows:

Total North Store South Store East Store
Selling expenses:
Sales salaries $ 353,000 $ 108,000 $ 127,000 $ 118,000
Direct advertising 244,000 70,000 91,000 83,000
General advertising* 62,100 16,500 23,700 21,900
Store rent 357,000 104,000 139,000 114,000
Depreciation of store fixtures 48,300 16,000 15,500 16,800
Delivery salaries 78,000 26,000 26,000 26,000
Depreciation of delivery equipment 37,500 12,500 12,500 12,500

Total selling expenses $ 1,179,900 $ 353,000 $ 434,700 $ 392,200

*Allocated on the basis of sales dollars.

Total North Store South Store East Store
Administrative expenses:
Store management salaries $ 127,000 $ 40,000 $ 49,000 $ 38,000
General office salaries* 82,800 22,000 31,600 29,200
Insurance on fixtures and inventory 49,700 13,200 18,500 18,000
Utilities 163,000 50,000 59,000 54,000
Employment taxes 96,120 29,400 35,040 31,680
General office other* 103,500 27,500 39,500 36,500

Total administrative expenses $ 622,120 $ 182,100 $ 232,640 $ 207,380
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 filled by hiring a new employee at a salary of $21,000 per quarter. The general manager of the North Store would be retained at her normal salary of $22,000 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 persons salary is $23,000 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.

f. The companys employment taxes are 15% of salaries.
g. One-third of the insurance in the North Store is on the stores fixtures.
h.

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 $11,000 per quarter.

Required:
1.

Prepare a schedule showing the change in revenues and expenses and the impact on the companys overall net operating income that would result if the North Store were closed. (Any losses/ reductions should be indicated by a minus sign.)

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