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 Total Store Store Sales $4,400,000 $880,000 $1,760,000 Cost of goods sold 2,420,000 525, 000 927,000 Gross margin 1,980,000 355,000 833,000 Selling and administrative expenses : Selling expenses 845,000 245,400 322,000 Administrative expenses 453,000 120,000 171,900 Total expenses 1,298,000 365, 400 493,900 Net operating income (loss) $ 682,000 $(10,400) $ 339,100 East Store $1,760,000 968,000 792,000 277,600 161,100 438,700 353,300 $ 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

Superior Market Inc. Req. 1 Avoidable employee salaries Sales salaries Delivery salaries Store management salaries (28000-13200) Saalry of new manager General office comp 65400 5400 14800 12200 6600 104400 Req. 2 Employment taxes(65400+5400 14800 +12200+6600)* 15 % 15660 Req. 3 Gross margin lost Avoidable costs : Sales salaries Direct advertising Store rent Delivery salaries Store management salaries (28000-13200) Saalry of new manager General office comp Insurance on inventories 355000 65400 65000 83000 5400 14800 12200 6600 7800 Utilities 27850 Employment taxes(65400+5400 14800 +12200+6600)* 15 % Decrease in company profits if the north store is closed 15660 303710 51290 Financial disadvantage of $51290 Req. 4 Gross margin lost if north store is closed Gross margin gained from the east etore(880000/4) 45% Net operating (loss) in gross margin -355000 GM% of east store 792000 /1760000 45% 99000 256000 Less:_Avoidable costs of North store Net advantage (disadvantage) of closing the north sore 303710 47710 Should be closed