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 givenbelow: Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North Store South Store East Store Total $3,480,000 $880,000 $1,360,000 $1,240,000 Sales Cost of goods sold 1,922,800 492,800 748,000 682,000 Gross margin 1,557,200 387,200 612,000 558,000 Selling and administrative expenses: Selling expenses: Administrative expenses 969,800 282,600 490,340 139 365,400 187,980 321,800 162,720 ,640 Total expenses 1,460,140 422,240 553,380 484,520 Net operating income (loss) $ 97,060 (35,040) S 58,620 $ 73,480

Explanation / Answer

1 Kept Close Change Sales 880000 0 -880000 Cost of Goods Sold 492800 0 -492800 Gross Margin 387200 0 -387200 Selling Expenses       Sales salaries   86000 0 -86000       Direct advertising 59000 0 -59000      General advertising* 13200 13200 0       Store rent 93000 0 -93000       Depreciation of store fixtures 9400 9400 0       Delivery salaries 15000 3000 -12000       Depreciation of delivery equipment 3400 3400 0   Total selling expenses 279000 29000 -250000   Administrative expenses:       Store management salaries 29000 17600 -11400 New Manager Salary 16600 0 -16600       General office salaries* 17600 8800 -8800       Insurance on fixtures and inventory 9900 3300 -6600 =-9900*2/3 Two third of north could be reduced      Utilities 39000 0 -39000       Employment taxes 22140 3090 -19050 (3090=(3000+17600)*15%) New Manager Employment Tax 2490 0 -2490 (2490=16600*15%)       General office —other* 22000 22000 0     Total administrative expenses 158730 54790 -103940 Total operating Expenses 437730 83790 -353940 NetOperating Income -50530 -83790 -33260 2 The North Store should not be closed because that would further reduce company profit by 33260. 3 Sales Transfer to east store 220000 (880000/4) East gross margin 45% =558000/1240000 Margin added 99000 Less: Loss increased calculated above 33260 Net advantage of closing north store 65740

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