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 Gross margin Selling and administrative expenses $4,200,000 $840,000 $1,680,000 $1,680,000 924,000 756,000 2,310,000 500,000 1,890,000 340,000 886,000 794,000 Selling expenses Administrative expenses 841,000 243,400 118,000 1,284,000 361,400 $ 606,000 $(21,400 276,600 156,100 432,700 304,100 323,300 321,000 168,900 489,900 443,000 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: North Store South Store East Store Total Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery $256,800 177,000 63,000 285,000 22,000 24,600 68,600 $ 78,200 $110,000 84,000 25,200 114,000 7,200 8,200 63,000 12,600 81,000 5,800 8,200 30,000 25,200 90,000 9,000 8,200 4,200 12,600 4,200 4,200 equipment Total selling expenses $841,000 $243,400 $321,000 $276,600 Allocated on the basis of sales dollars North Store South Store East Store Total Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and $ 88,000 27,000 36,000 $ 25,000 25,200 63,000 37,000 12,600 25,200 inventory Utilities Employment taxes General office-other* 10,900 27,740 25,260 42,000 $443,000 $118,000 $168,900 $156,100 11,100 28,840 17,460 21,000 15,000 28,560 22,140 42,000 85,140 64,860 105,000 Total administrative expenses Allocated on the basis of sales dollars. b. The lease on the building housing the North Store can be broken with no penalty C. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed d. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $11,600 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,600 per quarter. All other managers and employees in the North store would be discharged e. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person's salary is $5,200 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete. f. The company pays employment taxes equal to 15% of their employees' salaries g. One-third of the insurance in the North Store is on the store's fixtures h. The “General office salaries" and "General office-other" relate to the overall management of Superior Markets, Inc If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's compensation is $6,300 per quarter.

Answer 1

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Answer is highlighted in yellow Solution 2) Employment Taxes: Salaries avoided by closing the store: Sales Salaries Delivery salaries Store Management salaries (27000-12600) Salary of new manager General office compensation Total Avoided Employment Tax rate Employment taxes avoided S 68,600 $ 5,200 $ 14,400 11,600 $ 6,300 106100 15% S 15.915