Superior Markets, Inc., operates three stores in a large metropolitan area. A se
ID: 2600587 • Letter: S
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 Cast Store Total Sales Cost of goods sold Gross margin Selling and administrative expenses $4,700,000 $940,000 $1,880,000 $1,880,000 1,034,000 846,000 2,585,000 2,115,000 580,000 360,000 971,000 909,000 323,500 176,400 499,900 (11,400) 409,100 398,300 279,100 168,600 447,700 Selling expenses Administrative expenses 468,000 1,319,000 $ 796,000 851,000 248,400 123,000 371,400 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:Explanation / Answer
NORTH $000
SOUTH $000
EAST $000
SALES
940
1880
1880
COGS
580
971
1034
GROSS MARGIN
360
909
846
LESS SELLING EXPENSES
SALES SALARIES
60.6
ADVERT
68
GEN ADVERT
14.1
STORE RENT
86
DEP STORE FIX
6.3
DELIVERY SALARIES
8.7
DEP DELI EQUIP
4.7
248.4
ADMIN EXPENSES
ST MGR SALARY
29.5
GEN OFFICE SALARIES
14.2
INSUR
12.6
UTILITY
26.25
EMP TAX
16.95
GEN OFFICE
23.5
123
-11.4
BY CLOSING DOWN NORTH STORE THE IMPACTS WOULD BE:
Answers:
NORTH $000
SOUTH $000
EAST $000
SALES
940
1880
1880
COGS
580
971
1034
GROSS MARGIN
360
909
846
LESS SELLING EXPENSES
SALES SALARIES
60.6
ADVERT
68
GEN ADVERT
14.1
STORE RENT
86
DEP STORE FIX
6.3
DELIVERY SALARIES
8.7
DEP DELI EQUIP
4.7
248.4
ADMIN EXPENSES
ST MGR SALARY
29.5
GEN OFFICE SALARIES
14.2
INSUR
12.6
UTILITY
26.25
EMP TAX
16.95
GEN OFFICE
23.5
123
-11.4
BY CLOSING DOWN NORTH STORE THE IMPACTS WOULD BE:
- GROSS MARGIN OF 360K WOULD BE WIPED OUT, A REUDCTION OF 360/2115 = 17%
- Lease would reduce 86000
- Fix depreciation will continue 6300, insurance 12600/3= 4200
- THE MANAGER’S SALARY WOULD REDUCE 14200
- $5700 REDUCE – NORTHSTORE STAFF
- DEP WOULD STILL CONITNUE
- TAXES REDUCE : 16950
- INSURANCE REDUCE: 2625
- COMPENSATION to be paid $7100
Answers:
- $46400 saved as only the GM would be transferred . others dismissed
- $16,950 – 2130= $14820 saved as the GM is trf to other dept
- FINANCIAL ADVANTAGE $145820 OF LESS EXPENSES, BUT GOODWILL OF CUSTOMERS WOULD LEAD TO DISSATISFACTION, LOSS OF SERVICE CUSTOMERS WOULD GO ELSEWHERE
- NO, THE LEASE IS HIGH
- YES THE ADVANTAGE IS HIGHER BUT CUSTOMERS IN NORTH WILL NOT GO ALL THE TIME THE WAY TO EAST
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