Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Chapter 11, Problem 26P
Close or Retain a Store
Superior Markets. Inc., operates three stares in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:
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:
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
$11,000 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,000 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 $4,000 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 $6,000 per quarter.
Required:
- How much employee salaries will the company avoid if it closes the North Store?
- How much employment taxes will the company avoid if it closes the North Store?
- What is the financial advantage (disadvantage) of closing the North Store?
- Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store?
- Assume that the North Store's floor space can't be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?
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Manuel Inc. produces textiles in many different forms. After recording lower than anticipated profits last year, Manuel has decided to shut down one of its divisions that is not performing well. The accounting manager has compiled the following data on the two divisions being considered for closing and has asked you to evaluate the short-term and long-term effects on profits of closing each division.
Which division should be closed if Manuel is most concerned with increasing long-run profits?
Winter Outerwear
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$
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$
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2,160,000
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3,040,000
Controllable fixed costs
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2,020,000
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Noncontrollable fixed costs
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$
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multiple choice
Winter Outerwear
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Closing either would have the same…
A payday loan company has decided to open several new locations in a city
and hires consultants to decide where to open these locations. The consultants
are paid per store that is opened, and at the end of the quarter, the company
notices a many of the new stores' sales volume fail to meet expectations. To
incentivize the consultants to instead focus on opening profitable stores, the
company decided to alter the compensation to a percentage of the profit
earned per new store. This puts the consultants_
and the payday loan company should expect to
compensate for this change.
to
Group of answer choices
1. In a less risky position; pay the consultants more than they would in the per-
store scheme
2. A more risky position; pay the consultants less than they would in the per-
store scheme
3. In a less risky position; pay the consultants less than they would in the per-
store scheme
4. A more risky position; pay the consultants more than they would in the per-
store scheme
Swain Athletic Gear (SAG) operates six retall outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the
others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the
Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent Income statement for the Cornwall
store follows.
SWAIN ATHLETIC GEAR
Cornwall Street Store Income Statement
For the Year Ending February 28
Sales revenue
Costs
Cost of goods sold
Advertising
Store administrative salaries
Sales commissions
Leases and utilities
Allocated corporate support
Total costs
Net loss before tax benefit
Tax benefit at 25%
Net loss
The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is closed, neither total
corporate support costs nor operations or costs of the other stores are expected to change.
Required:
a. Using the worksheet below,…
Chapter 11 Solutions
Introduction To Managerial Accounting
Ch. 11 - What is a relevant cost?Ch. 11 - Define the following terms: incremental cost,...Ch. 11 - Are variable costs always relevant costs? Explain.Ch. 11 - Prob. 4QCh. 11 - “Variable costs and differential costs mean the...Ch. 11 - Prob. 6QCh. 11 - Prentice Company is considering dropping one of...Ch. 11 - Prob. 8QCh. 11 - What is the danger in allocating common fixed...Ch. 11 - Prob. 10Q
Ch. 11 - Give at least four examples of possible...Ch. 11 - Prob. 12QCh. 11 - Define the following terms: joint products, joint...Ch. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - Prob. 16QCh. 11 - The Excel worksheet form that appears below is to...Ch. 11 - The Excel worksheet form that appears below is to...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Prob. 9F15Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Prob. 13F15Ch. 11 - Prob. 14F15Ch. 11 - Cane Company manufactures two products called...Ch. 11 - Identifying Relevant Costs Syahn, AB, is a Swedish...Ch. 11 - Prob. 2ECh. 11 - Make or Buy Decision Troy Engines, Ltd,...Ch. 11 - Special Order Decision Imperial Jewelers...Ch. 11 - Volume Trade-off Decisions Outdoor Luggage, Inc.,...Ch. 11 - Prob. 6ECh. 11 - Sell or Process Further Decisions Dorsey Company...Ch. 11 - Volume Trade-Off Decisions Barlow Company...Ch. 11 - Special Order Decision Delta Company produces a...Ch. 11 - Make or Buy Decision Futura Company purchases the...Ch. 11 - Make or Buy Decision Han Products manufactures...Ch. 11 - Volume Trade-Off Decisions Benoit Company produces...Ch. 11 - Prob. 13ECh. 11 - Identification of Relevant Costs Kristen Lu...Ch. 11 - Prob. 15ECh. 11 - Identification of Relevant Costs Bill has just...Ch. 11 - Prob. 17ECh. 11 - Prob. 18PCh. 11 - Dropping or Retaining a Segment Jackson Count...Ch. 11 - Sell or Process Further Decision (Prepared from a...Ch. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Make or Buy Decision Silven Industries, which...Ch. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Close or Retain a Store Superior Markets. Inc.,...Ch. 11 - Sell or Process Further Decisions Come-Clean...Ch. 11 - Make or Buy Decisions “In my opinion, we ought to...
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