The Tilots Corporation's segmented absorption costing income statement for the last quarter for its three metropolitan stores is given below: Uptown Store $900,000 513,000 Total $2,5ee,000 1,450,000 Downtown Store 5600,000 372.000 Westpark Store $1,000,000 565, oee Sales Cost of goods sold 387,000 1,050,000 228,00 435,000 Gross margin Selling and administrative expenses Selling expenses Direct advertising General advertising Sales salaries Delivery salaries Store rent Depreciation of store fixtures Depreciation of delivery equipment 118,500 20,000 157.000 30,000 215,000 46,950 40,000 7,200 52.000 10,000 70,000 18,300 36,000 4.800 45,000 10,000 65,000 8, Bee 42,500 3,000 60,000 10,000 30,000 19,850 27,000 9.ee 9.600 9,000 614,450 206, See 178,600 229,350 Total selling expenses 63,000 50,000 89,800 20,000 18,000 31,000 18,000 12,080 27,200 25, eee 20,000 31,600 Administrative expenses: Store management salaries General office salaries Utilities Insurance on fixtures and inventory Employee benefits General office expenses-other 25,500 36,000 8,000 12,eee 9,000 10,200 8,500 13,800 25,000 9,eee 6,000 10, eee Total administrative expenses 289,300 98,000 82,400 108,900 Total operating expenses 983,750 304,5ee 261,000 338,250 Operating income (loss) $ 146,250 $ 82,580 $(33,880) $ 96,750 Management is very concerned about the Downtown Store's inability to show a profit, and consideration is being given to closing the store. The company has asked you recommend a course of action. Additional information available on the store is provided below. a. The manager of the store has been with the company for many years, he would be retained and transferred to another position in the company if the Downtown Store were closed. His salary is $6,000 per month, or $18,000 per quarter. If the store were not closed, a new employee would be hired to fill the other position at a salary of $5,000 per month b. The lease on the building housing the Downtown Store can be broken with no penalty c The fixtures being used in the Downtown Store would be transferred to the other two stores if the Downtown Store were closed d. Employee benefits are 12% of salaries e A single delivery crew serves all three stores. One delivery person could be discharged if the Downtown Store were closed this person's salary amounts to $7000 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use but it does eventually become obsolete, 1 One-third of the Downtown Store's insurance relates to its fixtures. g The general office salaries and other expenses relate to the general management of the Tilots Corporation. The employee in the general office who is responsible for the Downtown Store would be discharged if the store were closed. This employee's compensation amounts to $8,000 per quarter. 1. Prepare a schedule showing the change in revenues and expenses and the impact on the overall company operating income thal would result if the Downtown Store were closed. (Do not round Intermediate calculations. Negative amounts should be indicated by a minus sign.) (Gross margin lost if the store is closed Less costs that can be avoided 0 S 0 2. Based on your computations in (1) above, what would you recommend to the management of the Tilots Corporation? The Downtown Store should not be closed The Downtown Store should be closed 3. Assume that if the Downtown Store were closed, sales in the Uptown Store would increase by $200,000 per quarter due to loyal customers shifting their buying to the Uptown Store. The Uptown Store hos ample capacity to handle the increased sales, and its gross margin is 43% of sales o. Calculate the Net advantage of closing the Downtown Store Not advantage of closing the Downtown Store b. What recommendation would you make to the management of the Tilots Corporation's? O The Downtown Store should be closed. The Downtown Store should not be closed