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 Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North South East Total Store Store Store Sales $4,900,000 $980,000 $1,960,000 $1,960,000 Cost of goods 2,695,000 620,000 997,000 1,078,000 sold Gross margin 2,205,000 360,000 963,000 882,000 Selling and administrative expenses: Selling 855,000 250,400 324,500 280,100 expenses Administrative 478,000 125,000 179,400 173,600 expenses Total expenses 1,333,000 375,400 503,900 4 53.700 Net operating 72.000 $715.400) $ 459,100 $ 428,300 income (loss) 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: North South East Total Store Store Store Selling expenses! Sales salario $252, 600 $ 65,400 $ 75,400 $111.800 Direct advertising 184,00070, 000 91,000 23,000 General 73,500 14,700 29,400 29,400 advertising Store rent 278,000 80,000 107,000 91,000 Depreciation of 25,500 6,500 7,900 11,100 store fixtures Delivery salaries 26,700 8,900 8,900 8,900 Depreciation of delivery equipment 14,700 4,900 4,900 4,900 Total selling $855,000 $250,400 $324,500 $280, 100 expenses "Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses Store managers salaries General office $ 98,500 $ 30,500 $ 39,500 $ 28,500 73,500 14,800 29,400 29, 300 Insurance on Fixtures and inventory 44,000 13,200 18,500 12,300

All information needed to solve the problem is shown. What are the answers to questions 1, 2, 3, 4, and 5?

Answer 1

Solution 1
Computation of Avoidable Employee Salaries
Sales salaries	65400
Delivery Salaries	5900
Store manager Salaries (30500-14800)	15700
General office salaries	7400
Salary of New manager	13800
Total	108200
Solution 2
Computation of Avoidable Employment Taxes
Avoidable employee Salaries	108200
*Employment tax rate	15%
Avoidable Employment Taxes	16230
Solution 3
Computation of financial advantage (disadvantage) of closing the North Store
Gross Margin lost if North store closed		-360000
Cost that can be avoided:
Sales salaries	65400
Delivery Salaries	5900
Store manager Salaries (30500-14800)	15700
General office salaries	7400
Salary of New manager	13800
Employment Tax	16230
Direct Advertising	70000
Store Rent	80000
Insurance on Inventory (13200*2/3)	8800
Utilities	24060
Total Cost Avoided		307290
Financial advantage (Disadvantage) of Closing North Store		-52710

Solution 4:

No, we would not recommend closing the North Store as there is net financial disadvantage of ($52710).

Solution 5:

Contribution margin ratio of East store
Gross Margin of East store	882000
Sales of East Store	1960000
Contribution margin ratio of East Store	45.00%
Under New assumption: Computation of Financial advantage (disadvantage) of closing the North Store
Gross Margin lost if North store closed	-360000
Gross Margin gained from east store ($980,000*1/4*45%)	103500
Net loss of Gross Margin	-256500
Less: Total Cost that can be avoided (Computed in part 3)	307290
Financial advantage (disadvantage) of closing the North Store	50790