Superior Markets, Inc., operates three stores in a large metropolitan area. A se

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 Store South Store as Total Store Sales Cost of goods sold Gross margin Selling and administrative expenses: $3,500,000 $780,000 $1,400,000 $1,320,000 726,000 594,000 1,925,000 1,575,000 450,000 330,000 749,000 651,00e 273,100 138,600 411,700 $ 340,000 (17,400) 175,100 182,300 Selling expenses Administrative expenses 408,000 1,235,000 827,000 236,400 111,000 347,400 317,500 158,400 475,900 Total expenses Net operating 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 Store South Store as Store Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery $228,000 62,600 77,000 88,400 37,000 19,800 11,0e0 6,900 7,500 3,500 56,000 11,700 170,000 52,500 325,000 18,500 22,500 77,000 21,000 90,000 125,000 6,500 7,500 3,500 7,500 10,500 equipment Total selling expenses 36,400 $317,500 $273,100 Allocated on the basis of sales dollars

Explanation / Answer

1). Employee salaries will company avoid if closes north store.
Sales salaries                      62600
Delivery Salaries                   4500
Store manager Salaries        11700 (23500-11800)
General office salaries          5900
Salary of New manager        10800
Total                                   95500

2). Employment taxes the company will avoid are:
= 95500*15% = 14325

3). Calculation of Advantage or disadvantage.
Employee salaries           95500
Employment taxes          14325
Rent                               90000
Insurance                        6000    (9000/3*2)
Direct advertising             56000
Utilities                           31390
Total Exp avoided            293215
Reduction in Gross Margin is $340000
Net Disadvantage = 330000-293215 = $36785
(Here no explanation is given on Direct advertising and utiliities and are looking to be directly attributable so deemed as avoidable)

4). Even if the space of North store can be subleased it is not advisable to close the store because there is disadvantage even when the lease can be broken without any penalty.

5). If 1/4 of sales of north store is tfd to east store.
Percentage of gross margin in east store = 594000 / 1320000 = 45%
1/4 sales of north store = 780000/4 = $195000
Gross margin from increased sales in east store = 195000 * 45% = 87750
Current disadvantage for closing the store = $ 36785
Net advantage = 87750- 36785= $50965
Hence the north store in this situation should be closed.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.