70.2K

Verified Solution

Link Copied!

Superior Markets, Incorporated, 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, Incorporated Income Statement For the Quarter Inded September 30 Total North Store South Store Tant Store Sales $ 3,180,000 $763,200 $ 1,272,000 $ 1,144.800 Cont of goods sold 1.756,632 427,392 699,600 629.640 Cromargin 1,423,368 335,808 572.400 515, 160 Selling and administrative expenses Selling expenses 866,020 245,284 333.900 286,836 Administrative expenses 405, 980 112,360 159.954 133,666 Total expenses 1,272,000 357.644 493,854 420.502 Met operating income (100) $ 151,368 (21,836) $78,546 $.94,658 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 that are shown above is as follows: Total East Store Selling expenses: Sales Balaries Direct advertising General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses "Allocated on the basis of sales dollars. $ 253,340 198,220 47,700 318,000 16,960 22,260 9,540 $ 866,020 North Store South Store $ 74,200 $ 94,340 54,060 76,320 11, 448 19,080 90,100 127,200 4,876 6, 360 7,420 7,420 3.180 3.100 $ 245, 284 $. 333,900 $ 84,800 67,840 17,172 100, 700 5,724 7,420 3,180 $ 286,836 Total North Stord South Store Tast Store Administrative expenses Store managers' salarien General office salario Insurance on fixtures and inventory Utilities Employment taxon General office-other Total administrative expenses "Allocated on the basis of sales dollars. $ 74,200 53,000 26,500 112,360 60, 420 79.500 $ 405, 980 $ 22,260 12,720 7.950 32, 860 17,490 19.080 $ 112,360 $ 31,000 21,200 9,540 42.400 23,214 32,800 $ 159,954 20,140 19,080 9,010 37,100 19,716 20. 620 $ 133,666 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 $11,660 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,720 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 $4,240 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' salarles. 9. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries" and "General officeother relate to the overall management of Superior Markets, Incorporated 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 $6,360 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 can't be sublessed, would you recommend closing the North Store? 5. Assume that the North Store's floor space can't be sublessed. However , let's Introduce three more assumptions. First, assume that I 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

Answer & Explanation Solved by verified expert

See Answer