Superior Markets, Inc. operates three stores in a large metropolitan area. A seg
ID: 2513932 • Letter: S
Question
Superior Markets, Inc. operates three stores in a large metropolitan area. A segmented absorption costing i company for the last quarter is given below Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North Store South Store Bast Store Total $4,700,000 $940,000 $1,880,000 $1,880,000 Sales Cost of goods sold Gross margin Selling and administrative 2,585,000 580,00097 2,115,000 360,000 971,0001,034,000 909,000 846,000 851,000 248,400 323,s00 279,100 Selling expensen Adminietrative expenses 468,000123,000 1 319,000 371 400 Net operat.ing income (loas)796.00 .00) 168,600 447,700 (11,400) 409,100 398,300 6,400 49,900 Total expenses 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:Explanation / Answer
Ans
1) Employee salaries the company will avoid if closes the North Store :
Sales Salaries $60600
Delivery Salaries $5700
Store manager Salaries $15300
General office Salaries $7100
Total $88700
2) Employment taxes the company will avoid: = $88700*15% = $13305
3) Total saving in cost:
Selling Expenses: $60600+68000+14100+86000+5700= $234400
Administrative Expenses = $15300+7100+4200(12600/3)+26250+13305+23500= $89655
Total Savings = 234400+89655 = $324055
Loss of Gross Margin= $360000
There is net loss on shutting down the north store = 360000-324055= $35945. So there is financial disadvantage of shutting down north store.
4) If North store's floor space can't be subleased , it is not advisable to close the Northe Store.
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