The Tilots Corpor metropolitan stores is given below ration\'s segmented absorpt

Question

The Tilots Corpor metropolitan stores is given below ration's segmented absorption costing income statement for the last quarter for its three Westpark $2,500,000 900,000 600,000 $1,000,000 Uptown Downtown Total 1 450,000 1,050,000 Store 372,000 228,000 Sales Cost of goods sold Gross margin Selling and administrative expenses 513,000 565,000 387,000 435,000 Selling expenses 118,500 20,000 157,000 30,000 215,000 46,950 42,500 8,000 60,000 10,000 80,000 40,000 Direct advertising General advertising Sales salaries Delivery salaries Store rent Depreciation of store fixtures Depreciation of delivery 52,000 10,000 70,000 18,300 4 800 45,000 10,000 65,000 8,800 equipment 27,000 9,000 9,000 9,000 Total selling expenses 614,450 206,500 178,600 229,350 Administrative expenses: Store management salaries General office salaries Utilities Insurance on fixtures and 63,000 50,000 89,800 20,000 18,000 31,000 18,000 12,000 27,200 25,000 20,000 31,600 25,500 36,000 8,000 12,000 9,000 10,200 8,500 13,800 inventory Employee benefits General office 25,000 289,300 903,750 9,000 98,000 304,500 6,000 82,400 261,000 expenses other 108,900 338,250 s 146,250 S 82,500 (33,000) 96,750 Total administrative expenses Total operating expenses Operating income (loss) Allocated on the basis of sales dollars

Explanation / Answer

1 Schedule showing the changes in revenues and expenses: Gross margin lost -228000 Less:Avoidable costs Direct advertising 36000 Sales salaries 45000 Delivery salaries 7000 Store rent 65000 Store management salaries (5000*3) 15000 General office salaries 8000 Utilities 27200 Insurance on inventory (9000*2/3) 6000 Employee benefits (Note:1) 9000 218200 Decrease in companys operating income -9800 Note: 1. Employee benefits=12% of salaries Salary cost which can be avoided: Sales salaries 45000 Delivery salaries 7000 Store management salaries 15000 General office salaries 8000 Total 75000 Employee benefits which can be avoided=75000*12%=9000 2 The downtown store should not be closed 3 a. Decrease in companys operating income -9800 Increased gross margin (200000*43%) 86000 Net advantage of closing downtown store 76200 b. The downtown store should be closed

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