Exercise #2: (Keep or Drop a Segment) G Company has three stores known as Big,...
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Accounting
Exercise #2: (Keep or Drop a Segment) G Company has three stores known as Big, Medium, and Small respectively. Total Sales from the three stores were $1,500,000 this last year. Information from the accounting information system on recent performance is as follows:
Big
Medium
Small
Sales
25,000 units @ $30 = $750,000
(this is 50% of company sales)
18,750 units @ $32 = $600,000
(this is 40% of company sales)
3,750 units @ $40 = $150,000
(this is 10% of company sales)
Big
Medium
Small
Variable cost per unit
$24
$24
$36
Traceable Fixed Cost (Advertising)
$20,000
$10,000
$5,000
Allocated Companywide Fixed Cost
$69,000
$55,200
$13,800
($138,000 total allocated by sales 50%, 40%, 10%)
REQUIRED:
(a) Prepare G Companys Segment Margin Income Statement with a column for each subunit, and a fourth column to Total for the entire company.
(b) Then write a sentence telling whether Small store should be closed or not.
(c) Then write several sentences explaining why or why not it should be closed AND what the relevant dollar amount change in total company income would be if it was closed.
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