Question

Power Music owns five music stores, where it sells music, instruments, and supplies. In addition, it rents instruments. At the end of last year, the new accounts showed that although the business as a whole was profitable, the Fifth Avenue store had shown a substantial loss. The income statement for the Fifth Avenue store for last month follows: $2,030,000 1,720,000 $ 310, eee POWER MUSIC Fifth Avenue Store Partial Income Statement Sales Cost of goods sold Gross margin Costs: Payroll, direct labor, and $161,000 supervisiona Rentb 56, 30e State taxes 8,300 Insurance on inventory 63,200 Depreciation 23,300 Administration and general officee 68,000 Interest for inventory carrying 15,200 costsf Total costs Loss 395, 300 (85,300) $

Answer 1

(a) -- Calculate the cost savings in closing the Fifth Avenue store.

Answer -

	Particulars	Explanation	Amount ($)
A.	Payroll, Direct Labor, and Supervision	Saved if the store is closed	161000 [Given]
B.	Rent	Saved if the store is closed	56300 [Given]
C.	State Taxes	If the store is closed, there will be no sales and no inventory	8300 [Given]
D.	Insurance on Inventory	If the store is closed, there will be no sales and no inventory	63200 [Given]
E.	Depreciation	There is no value to the equipment and the salvage value is zero. Therefore there will be no savings if the store is closed.	0
F.	Administration and General Office	10% of these costs could be saved if the store is closed	6800 [68000 * 10%]
G.	Interest for Inventory Carrying Costs	If the store is closed, there will be no sales and no inventory	15200 [Given]
Cost savings		A + B + C + D + E + F + G	310800