Question

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 North South East Total Store Store Store Sales $5,000,000 $960,000 $2,000,000 $2,040,000 Cost of goods sold 2,750,000 600,000 1,028,000 1,122,000 Gross margin 2,250,000 360,0001972,000 918,000 Selling and administrative expenses: Selling expenses 857,000 251, 4001325,000 280,600 Administrative 483,000 126,000 180,900 | 176,100 expenses Total expenses 1,340,000 377,400 505,900 11 456,700 Net operating income $ 910,000 $(17,400) S 466,100 $ 461,300 (Loss) ances 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 whother the store should be closed or koplopen. 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 Stortor Eset Store Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store $246.000 $ 64.400 $ 73,000 $108.600 H 71.000 92,000 20,000 75,000 14.400 30.000 283,000 01.000 108, 000 94,000 26.000 6.600 .000 11.400 Prev 2 of 3 Next -

Answer 1

Notes
Gorss margin lost if store is closed		$       (360,000)
Costs that can be avoided
Sales salaries	$            64,400
Direct advertising	$            71,000
store rent	$            81,000
Delivery salaries	$               6,000
Store management salaries	$            16,600
Salary of new manager	$            13,400
General office compensation	$               7,200
Insurance of inventories	$               9,000
Utilities	$            25,280
Employment taxes	$            16,140
Total costs that can be avoided		$          310,020
decrease in company profits if north store is closed		$          (49,980)
Store management salaries($31000-$14400)	$            16,600
Insurance on inventories (13500*2/3)	$               9,000
Salaries to be avoided by closing store
Sales salaries	$            64,400
Delivery salaries	$               6,000
Store management salaries	$            16,600
Salary of new manager	$            13,400
General office compensation	$               7,200
Total avoided	$          107,600	Ques 1
Employment tax rate	15%
Employment taxes avoided	$            16,140	ques 2
Ques 3
If north star is closed company is at financial disadavantage		$          (49,980)
Ques 4
The North Store is supposed to not be closed. Because the company’s overall net income will reduced by $49,980 per quarter. If the store room should not be subleased a decision to close the store would reason an even greater decline in the company’s overall net in-come
				Ques 5
				gross margin lost if the north store is closed	$        (360,000)
Gross margingained form east store	$          108,000
Net operating (loss) in gross margin	$        (252,000)
Less:costs that can be avoided if northstar is closed	$          310,020
Net advantage/(disadvantage) of closing the north store	$            58,020
Sales transferred-960000*1/4	240000
East store gross margin=918000/2040000=	45%
Gross margin gained from east store
(240000*45%)	108000