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 East Store Total Sales Cost of goods sold $4,400,000 $880,000 $1,760,000 $1,760,000 2,420,000 525,000 927,000 968,000 Gross margin 1,980,000 355,000 833,000 792,000 Selling and administrative expenses: Selling expenses: Administrative expenses 845,000245,400 453,000 20,000 322,000 171,900 277,600 161,100 Total expenses 1,298,000 365,400 493,900 438,700 Net operating income (loss) $682,000 S (10,400) 339,100 S353,300 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

SOLUTION

Reject order ($) Accept Order ($) Net Income effect ($) Revenues (5,000 * $5.25) 0 26,250 26,250 Materials ($0.40) 0 (2,000) (2,000) Labor ($1.20) 0 (6,000) (6,000) Variable overhead ($0.80) 0 (4,000) (4,000) Fixed overhead 0 (5,000) (5,000) Sales commissions 0 0 0 Net income 0 9,250 9,250

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