Question

View Problem 6-26 (Algo) Close or Retain a Store (LO6-2] 6.68 points 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: eBook Print References Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North South Total Store Store Sales $4,200,000 $840,000 $1,680,000 Cost of goods sold 2,310,000 500,000 886, 000 Gross margin 1,890,000 340,000 794,000 Selling and administrative expenses: Selling expenses 841,000 243,400 321, 000 Administrative expenses 443,000 118,000 168,900 Total expenses 1,284,000 361,400 489,900 Net operating income (loss) $ 606,000 $(21,400) $ 304,100 East Store $1,680,000 924,000 756,000 2 76,600 156,100 432,700 323, 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: a. The breakdown of the selling and administrative expenses that are shown above is as follows:

Answer 1

1) Delivery salaries Salary of new manager General office compensation Sales salaries Store management salaries (27000-12600) salaries that can be avoided 5,200 11,600 6,300 68,600 14,400 106,100 2) empoyee tax that can be avoided = 106100*15% 15,915 3) |-340,000 Gross margin lost if the store is closed Costs that can be avoided: salaries that can be avoided empoyee tax that can be avoided Utilities Store rent Insurance on inventories (11100* 2/3) Direct advertising Total costs that can be avoided Net financial advantage (disadvantage) of closing the North store 106,100 15,915 28,840 81,000 7,400 63,000 302,255 |- 37,745 4. North store should not be closed as it result in net financial disadvantages of $37745. 5) Gross margin lost if the North Store is closed Gross margin gained from the East Store =840000*0.25*756000/1680000 Net operating (loss) in gross margin costs that can be avoided if the North Store is closed Net advantage (disadvantage) of closing the North store - 340,000 94,500 -245,500 302,255 56,755