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.
5. Assume that the North Store's floor space can’t be subleased. & assume that if the North Store were closed, 1/4 of its sales would transfer to the East Store.. 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? $$ amount
Superior Markets Inc. | ||
1) | ||
Gross Margin lost if the North Store would be closed down:($960000-$600000)=(A) | $ -3,60,000.00 | |
Cost can be avoided due to closed down of North Store | ||
Sales Salaries | $ 59,000.00 | |
Direct Advertising | $ 69,000.00 | |
Store Rent | $ 87,000.00 | |
Delivery Salaries | $ 5,800.00 | |
Store Management Salaries($30000-$14400) | $ 15,600.00 | |
Salary of new manager | $ 13,400.00 | |
General office compensation | $ 7,200.00 | |
Insurance on Inventories($12900*2/3) | $ 8,600.00 | |
Utilities | $ 25,870.00 | |
Employment Taxes | $ 15,150.00 | |
Total Cost to be avoided=(B) | $ 3,06,620.00 | |
Decrease in Company's Profit due to North Store is closed | $ -53,380.00 | |
Calculation of saving of Employment Taxes=(15% of Salaries avoided) | ||
Sales Salaries | $ 59,000.00 | |
Delivery Salaries | $ 5,800.00 | |
Store Management Salaries | $ 15,600.00 | |
Salary of new manager | $ 13,400.00 | |
General office compensation(It is treated as part of salaries) | $ 7,200.00 | |
Total Salaries Avoided | $ 1,01,000.00 | |
Saving of Employments Taxes($101000*15%) | $ 15,150.00 | |
2) | ||
The net operating income of the company would be decreased by $53380 when North Store should be closed so it is preferable for a Company to continue North Store. | ||
If the Store Space cannot be subleased or the lease broken without penalty then Net operating income of North Store would be decreased by($53380+$87000)=$140380 because store rent cannot be avoided due to close down north store. | ||
3) | ||
Gross Margin of East Store=(Gross Profit/Sales)*100=($864000/$1920000)*100 | 45% | |
Gross Margin of 1/4th sales of East Store when 1/4 sales of North store transferred to East Store) | ||
1/4 Sales of North Store=($960000*1/4) | $ 2,40,000.00 | |
Gross Margin for $240000 Sales of East Store=($240000*45%) | $ 1,08,000.00 | |
Gross Margin lost due to closed down North Store | $ -3,60,000.00 | |
Net Operating loss in gross margin(-$360000+$108000) | $ -2,52,000.00 | |
Less: Cost to be avoided if the North Store closed down | $ 3,06,620.00 | |
Net advantage of closing the North Store($306620-$252000) | $ 54,620.00 |
Superior Markets, Inc. Income Statement For the Quarter Ended September 30 Total North Store South Store...
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...
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 $ 3,100,000 $ 700,000 $ 1,240,000 $ 1,160,000 Cost of goods sold 1,705,000 380,000 687,000 638,000 Gross margin 1,395,000 320,000 553,000 522,000 Selling and administrative expenses: Selling expenses 819,000 232,400 315,500 271,100 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 North Store South Store East Store Total Sales Cost of goods sold Gross margin Selling and administrative expenses: $4,500,000 $900,000 1,800,000 $1,800,000 990,000 810,000 2,475,000 550.000 935,000 865.000 2,025,000350,000 Selling expenes Administrative expenses 278,100 163,600 441,700 $ 720,000 (17,400) 369,100 368,300 847,000...
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 StatementFor the Quarter Ended September 30TotalNorthStoreSouthStoreEastStoreSales$3,400,000$740,000$1,360,000$1,300,000Cost of goods sold1,870,000420,000735,000715,000Gross margin1,530,000320,000625,000585,000Selling and administrative expenses:Selling expenses825,000235,400317,000272,600Administrative expenses403,000110,000156,900136,100Total expenses1,228,000345,400473,900408,700Net operating income (loss)$302,000$(25,400)$151,100$176,300 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...
Problem 11-26 Close or Retain a Store [LO11-2] 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 $ 4,100,000 $ 860,000 $ 1,640,000 $ 1,600,000 Cost of goods sold 2,255,000 515,000 860,000 880,000 Gross margin 1,845,000 345,000 780,000 720,000 Selling and administrative expenses:...
Problem 11-26 Close or Retain a Store [LO11-2] 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 $ 4,100,000 $ 860,000 $ 1,640,000 $ 1,600,000 Cost of goods sold 2,255,000 515,000 860,000 880,000 Gross margin 1,845,000 345,000 780,000 720,000 Selling and 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 North South Total Store Store Sales $3,300,000 $760,000 $1,320,000 Cost of goods sold 1,815,000 433,000 711,000 Gross margin 1,485,000 327,000 609,000 Selling and administrative expenses: Selling expenses 823,000 234,400 316,500 Administrative expenses 398,000 109,000 155,400 Total expenses 1,221,000343,400 471,900 Net operating 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 $ 4,600,000 $ 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...