Question

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: East Store $1,520,000 836,000 6 84,000 821 Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North South Total Store Store Sales $3,800,000 $760,000 $1,520,000 Cost of goods sold 2,090,000 420,000 834,000 Gross margin 1,710,000 340,000 686,000 Selling and administrative expenses: Selling expenses 833,000 239,400 319,000 Administrative expenses 423,000 114,000 162,900 Total expenses 1,256,000 353,400 481,900 Net operating income (loss) $ 454,000 $(13,400) $ 204,100 225 000 274,600 146,100 420,700 263,300 $ 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

Answer: 1) Employee salaries will company avoid it closes northe stone. particulars. Amount sales salaries $ 59,000 Delivery Salaries $ 4.800 Store Manager salaries f25000-$11.400] $13.600 General office salaries $ 5,700 Salary $ New Manager $10400 Total Employee salaries $93,500 In: Employee Salaries is $93,500 2 Employment taxes the company will avoid - Employment Takes - Employee salaries x Rate of Fax. = $93,500 x 15% :. Employment Taxes = $14,025 5) calculation of Advauloge @y) Dis advanlagen particulars Amount Employee salaries $ 93,500 Employment Taxes $ 14,025 Rent Insurance ($9900% he] $93.000 $6,600 Direct advertising $ 59,000 utilities $33,220 Total Expenses avoided $299,345 Less Reduction in Gross Margin $340,000 Net Dis Advantage $40,655 :: Net Disadvantage is $40.655 15 / of sales of North store is tfd to east store: (Giross Margin/sales Gross Margin feast store = $684,000 515200083 458.0.45 /u of sales of North store - $760,000/4 = $190.000 Gross Margin & Westfd sales = $190,000x45% = $ 85,500 current disadvantage for closing the store = $40,655 .: Net Advanlage = $85,500-$40,655 = $44,845 .. The North store in this situation should be closed.