Superior Markets, Incorporated, 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, Incorporated Income Statement For the Quarter Ended September 30 Total North Store South Store East Store Sales $ 3,960,000 $ 950,400 $ 1,584,000 $ 1,425,600 Cost of goods sold 2,187,504 532,224 871,200 784,080 Gross margin 1,772,496 418,176 712,800 641,520 Selling and administrative expenses: Selling expenses 1,078,440 305,448 415,800 357,192 Administrative expenses 505,560 139,920 199,188 166,452 Total expenses 1,584,000 445,368 614,988 523,644 Net operating income (loss) $ 188,496 $ (27,192) $ 97,812 $ 117,876 The North Store has consistently shown losses over the past two years, so management is considering closing this store. A detailed breakdown of the selling and administrative expenses shown above is as follows: Total North Store South Store East Store Selling expenses: Sales salaries $ 315,480 $ 92,400 $ 117,480 $ 105,600 Direct advertising 246,840 67,320 95,040 84,480 General advertising* 59,400 14,256 23,760 21,384 Store rent 396,000 112,200 158,400 125,400 Depreciation of store fixtures 21,120 6,072 7,920 7,128 Delivery salaries 27,720 9,240 9,240 9,240 Depreciation of delivery equipment 11,880 3,960 3,960 3,960 Total selling expenses $ 1,078,440 $ 305,448 $ 415,800 $ 357,192 *Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 92,400 $ 27,720 $ 39,600 $ 25,080 General office salaries* 66,000 15,840 26,400 23,760 Insurance on fixtures and inventory 33,000 9,900 11,880 11,220 Utilities 139,920 40,920 52,800 46,200 Employment taxes 75,240 21,780 28,908 24,552 General office—other* 99,000 23,760 39,600 35,640 Total administrative expenses $ 505,560 $ 139,920 $ 199,188 $ 166,452 *Allocated on the basis of sales dollars. The North Store’s rental agreement can be broken with no penalty. The North Store’s fixtures would be transferred to the other two stores if it were closed. The North Store’s general manager would be transferred to another position in the company if it were closed. She would fill a position that otherwise would have required hiring a new employee at a salary of $14,520 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,840 per quarter. All other managers and employees in the North Store would be discharged. 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 $5,280 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use. The company pays employment taxes equal to 15% of their employees' salaries. One-third of the North Store’s insurance relates to its fixtures. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Incorporated. 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 $7,920 per quarter. Required: How much employee salaries will the company avoid if it closes the North Store? How much employment taxes will the company avoid if it closes the North Store? What is the financial advantage (disadvantage) of closing the North Store? Assuming the North Store's floor space can’t be subleased, would you recommend closing the North Store? Assume the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, if the North Store were closed, one-fourth of its sales would transfer to the East Store due to strong customer loyalty to Superior Markets. Second, the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East Store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?

Superior Markets, Incorporated, 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, Incorporated Income Statement For the Quarter Ended September 30 Total North Store South Store East Store Sales $ 3,960,000 $ 950,400 $ 1,584,000 $ 1,425,600 Cost of goods sold 2,187,504 532,224 871,200 784,080 Gross margin 1,772,496 418,176 712,800 641,520 Selling and administrative expenses: Selling expenses 1,078,440 305,448 415,800 357,192 Administrative expenses 505,560 139,920 199,188 166,452 Total expenses 1,584,000 445,368 614,988 523,644 Net operating income (loss) $ 188,496 $ (27,192) $ 97,812 $ 117,876 The North Store has consistently shown losses over the past two years, so management is considering closing this store. A detailed breakdown of the selling and administrative expenses shown above is as follows: Total North Store South Store East Store Selling expenses: Sales salaries $ 315,480 $ 92,400 $ 117,480 $ 105,600 Direct advertising 246,840 67,320 95,040 84,480 General advertising* 59,400 14,256 23,760 21,384 Store rent 396,000 112,200 158,400 125,400 Depreciation of store fixtures 21,120 6,072 7,920 7,128 Delivery salaries 27,720 9,240 9,240 9,240 Depreciation of delivery equipment 11,880 3,960 3,960 3,960 Total selling expenses $ 1,078,440 $ 305,448 $ 415,800 $ 357,192 Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 92,400 $ 27,720 $ 39,600 $ 25,080 General office salaries 66,000 15,840 26,400 23,760 Insurance on fixtures and inventory 33,000 9,900 11,880 11,220 Utilities 139,920 40,920 52,800 46,200 Employment taxes 75,240 21,780 28,908 24,552 General office—other* 99,000 23,760 39,600 35,640 Total administrative expenses $ 505,560 $ 139,920 $ 199,188 $ 166,452 *Allocated on the basis of sales dollars. The North Store’s rental agreement can be broken with no penalty. The North Store’s fixtures would be transferred to the other two stores if it were closed. The North Store’s general manager would be transferred to another position in the company if it were closed. She would fill a position that otherwise would have required hiring a new employee at a salary of $14,520 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,840 per quarter. All other managers and employees in the North Store would be discharged. 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 $5,280 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use. The company pays employment taxes equal to 15% of their employees' salaries. One-third of the North Store’s insurance relates to its fixtures. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Incorporated. 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 $7,920 per quarter. Required: How much employee salaries will the company avoid if it closes the North Store? How much employment taxes will the company avoid if it closes the North Store? What is the financial advantage (disadvantage) of closing the North Store? Assuming the North Store's floor space can’t be subleased, would you recommend closing the North Store? Assume the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, if the North Store were closed, one-fourth of its sales would transfer to the East Store due to strong customer loyalty to Superior Markets. Second, the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East Store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter6: Inventories

Section: Chapter Questions

Problem 3MAD: The general merchandise retail industry has a number of segments represented by the following...

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