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 |
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Total | North Store |
South Store |
East Store |
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Sales | $ | 3,500,000 | $ | 780,000 | $ | 1,400,000 | $ | 1,320,000 | ||||
Cost of goods sold | 1,925,000 | 450,000 | 749,000 | 726,000 | ||||||||
Gross margin | 1,575,000 | 330,000 | 651,000 | 594,000 | ||||||||
Selling and administrative expenses: | ||||||||||||
Selling expenses | 827,000 | 236,400 | 317,500 | 273,100 | ||||||||
Administrative expenses | 408,000 | 111,000 | 158,400 | 138,600 | ||||||||
Total expenses | 1,235,000 | 347,400 | 475,900 | 411,700 | ||||||||
Net operating income (loss) | $ | 340,000 | $ | (17,400 | ) | $ | 175,100 | $ | 182,300 | |||
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:
The breakdown of the selling and administrative expenses that are shown above is as follows:
Total | North Store |
South Store |
East Store |
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Selling expenses: | ||||||||
Sales salaries | $ | 228,000 | $ | 62,600 | $ | 77,000 | $ | 88,400 |
Direct advertising | 170,000 | 56,000 | 77,000 | 37,000 | ||||
General advertising* | 52,500 | 11,700 | 21,000 | 19,800 | ||||
Store rent | 325,000 | 90,000 | 125,000 | 110,000 | ||||
Depreciation of store fixtures | 18,500 | 5,100 | 6,500 | 6,900 | ||||
Delivery salaries | 22,500 | 7,500 | 7,500 | 7,500 | ||||
Depreciation of delivery equipment |
10,500 | 3,500 | 3,500 | 3,500 | ||||
Total selling expenses | $ | 827,000 | $ | 236,400 | $ | 317,500 | $ | 273,100 |
*Allocated on the basis of sales dollars.
Total | North Store |
South Store |
East Store |
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Administrative expenses: | ||||||||
Store managers' salaries | $ | 77,500 | $ | 23,500 | $ | 32,500 | $ | 21,500 |
General office salaries* | 52,500 | 11,700 | 21,000 | 19,800 | ||||
Insurance on fixtures and inventory | 30,000 | 9,000 | 11,500 | 9,500 | ||||
Utilities | 103,425 | 31,505 | 37,700 | 34,220 | ||||
Employment taxes | 57,075 | 15,795 | 20,700 | 20,580 | ||||
General office—other* | 87,500 | 19,500 | 35,000 | 33,000 | ||||
Total administrative expenses | $ | 408,000 | $ | 111,000 | $ | 158,400 | $ | 138,600 |
*Allocated on the basis of sales dollars.
The lease on the building housing the North Store can be broken with no penalty.
The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.
The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $10,700 per quarter. The general manager of the North Store would continue to earn her normal salary of $11,700 per quarter. All other managers and employees in the North store would be discharged.
The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $4,500 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.
The company pays employment taxes equal to 15% of their employees' salaries.
One-third of the insurance in the North Store is on the store’s fixtures.
The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $5,850 per quarter.
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?
4. Assuming that the North Store's floor space can’t be subleased, would you recommend closing the North Store?
5. Assume that the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. 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?
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 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 $ 3,900,000 $ 820,000 $ 1,560,000 $ 1,520,000 Cost of goods sold 2,145,000 480,000 829,000 836,000 Gross margin 1,755,000 340,000 731,000 684,000 Selling and administrative expenses: Selling expenses 835,000 240,400 319,500 275,100 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 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...
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 $ 4,400,000 $ 880,000 $ 1,760,000 $ 1,760,000 Cost of goods sold 2,420,000 525,000 927,000 968,000 Gross margin 1,980,000 355,000 833,000 792,000 Selling and administrative expenses: Selling expenses 845,000 245,400 322,000 277,600 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: Sales Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North Total Store $3,100,000 $700,000 Cost of goods sold 1,705,000 380,000 Gross margin 1,395,000 320,000 Selling and administrative expenses: Selling expenses: 819,000 232,400 Administrative expenses 388,000 107,000 Total expenses 1,207,000 339,400 Net operating income (loss) $ 188,000 $(19,480) South Store $1,240,000...
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 Statement For the Quarter Ended September 30 Total North Store South Store East Store Sales $ 4,700,000 $ 940,000 $ 1,880,000 $ 1,880,000 Cost of goods sold 2,585,000 580,000 971,000 1,034,000 Gross margin 2,115,000 360,000 909,000 846,000 Selling and administrative expenses: Selling expenses 851,000 248,400 323,500 279,100 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 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...
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