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. |
||||||||||||
Total |
North |
South |
East |
|||||||||
Sales |
$ |
4,800,000 |
$ |
960,000 |
$ |
1,920,000 |
$ |
1,920,000 |
||||
Cost of goods sold |
2,640,000 |
600,000 |
984,000 |
1,056,000 |
||||||||
Gross margin |
2,160,000 |
360,000 |
936,000 |
864,000 |
||||||||
Selling and administrative expenses: |
||||||||||||
Selling expenses |
853,000 |
249,400 |
324,000 |
279,600 |
||||||||
Administrative expenses |
473,000 |
124,000 |
177,900 |
171,100 |
||||||||
Total expenses |
1,326,000 |
373,400 |
501,900 |
450,700 |
||||||||
Net operating income (loss) |
$ |
834,000 |
$ |
(13,400 |
) |
$ |
434,100 |
$ |
413,300 |
|||
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:
Total |
North |
South |
East |
|||||
Selling expenses: |
||||||||
Sales salaries |
$ |
246,200 |
$ |
59,000 |
$ |
77,800 |
$ |
109,400 |
Direct advertising |
183,000 |
69,000 |
90,000 |
24,000 |
||||
General advertising* |
72,000 |
14,400 |
28,800 |
28,800 |
||||
Store rent |
286,000 |
87,000 |
106,000 |
93,000 |
||||
Depreciation of store fixtures |
25,000 |
6,400 |
7,800 |
10,800 |
||||
Delivery salaries |
26,400 |
8,800 |
8,800 |
8,800 |
||||
Depreciation of delivery |
14,400 |
4,800 |
4,800 |
4,800 |
||||
Total selling expenses |
$ |
853,000 |
$ |
249,400 |
$ |
324,000 |
$ |
279,600 |
*Allocated on the basis of sales dollars.
Total |
North |
South |
East |
|||||
Administrative expenses: |
||||||||
Store managers' salaries |
$ |
97,000 |
$ |
30,000 |
$ |
39,000 |
$ |
28,000 |
General office salaries* |
72,000 |
14,400 |
28,800 |
28,800 |
||||
Insurance on fixtures and inventory |
43,000 |
12,900 |
18,000 |
12,100 |
||||
Utilities |
74,760 |
25,870 |
20,940 |
27,950 |
||||
Employment taxes |
66,240 |
16,830 |
23,160 |
26,250 |
||||
General office—other* |
120,000 |
24,000 |
48,000 |
48,000 |
||||
Total administrative expenses |
$ |
473,000 |
$ |
124,000 |
$ |
177,900 |
$ |
171,100 |
*Allocated on the basis of sales dollars.
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?
1.Salary of new employee = $13,400
Delivery crew = $5,800
Sales Salaries = $59,000
Store manager Salaries = $30,000- 14,400 = $15,600
General Office Salaries = $7,200
Employee Salaries Avoided per Quarter = $101,000
2.Employment Taxes Avoided = 101,000*15% = $15,150
3.Financial Advantage = costs avoided –margin lost
= Direct Advertising cost + Store Rent +2/3rd Insurance +Utilities + Salaries Avoided + Taxes Avoided- 360,000
= 69,000 + 87,000 + 12,900*2/3 + 25,870 + 101,000 + 15,150 – 360,000
= -$53,380 i.e. disadvantage
Superior Markets, Inc, operates three stores in a large metropolitan area. A segmented absorption costing income...
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 $ 4,800,000 $ 960,000 $ 1,920,000 $ 1,920,000 Cost of goods sold 2,640,000 600,000 984,000 1,056,000 Gross margin 2,160,000 360,000 936,000 864,000 Selling and administrative expenses: Selling expenses 853,000 249,400 324,000 279,600 Administrative expenses...
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 $ 4,800,000 $ 960,000 $ 1,920,000 $ 1,920,000 Cost of goods sold 2,640,000 600,000 984,000 1,056,000 Gross margin 2,160,000 360,000 936,000 864,000 Selling and administrative expenses: Selling expenses 853,000 249,400 324,000 279,600 Administrative expenses...
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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 given below: Superior Markets, Inc. Income Statement For the Quarter Ended September 30 Total North Store South Store East Store Sales $ 4,600,000 $ 920,000 $ 1,840,000 $ 1,840,000 Cost of goods sold 2,530,000 565,000 953,000 1,012,000 Gross margin 2,070,000 355,000 887,000 828,000 Selling and administrative expenses: Selling expenses 849,000 247,400 323,000 278,600 Administrative expenses...
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