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: points South Skipped Store Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North Total Store Sales $4,200,000 $840,000 Cost of goods sold 2,310,000 500,000 Gross margin 1,890,000 340,000 Selling and administrative expenses: Selling expenses 841,000 243,400 Administrative expenses 443,000 118,000 Total expenses 1,284,000 361,400 Net operating income (loss) $ 606,000 $(21,400) $1,680,000 886,000 794,000 East Store $1,680,000 924,000 756,000 eBook 321,000 168,900 489,900 304,100 276,600 156, 100 432,700 323,300 $ $ Print 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:

Answer 1

1) Delivery salaries Salary of new manager General office compensation Sales salaries Store management salaries (27000-12600) salaries that can be avoided 5,200 11,600 6,300 68,600 14,400 106,100 2) empoyee tax that can be avoided = 106100*15% 15,915 3) |-340,000 Gross margin lost if the store is closed Costs that can be avoided: salaries that can be avoided empoyee tax that can be avoided Utilities Store rent Insurance on inventories (11100* 2/3) Direct advertising Total costs that can be avoided Net financial advantage (disadvantage) of closing the North store 106,100 15,915 28,840 81,000 7,400 63,000 302,255 |- 37,745 4. North store should not be closed as it result in net financial disadvantages of $37745. 5) Gross margin lost if the North Store is closed Gross margin gained from the East Store =840000*0.25*756000/1680000 Net operating (loss) in gross margin costs that can be avoided if the North Store is closed Net advantage (disadvantage) of closing the North store - 340,000 94,500 -245,500 302,255 56,755