question archive Superior Markets, Incorporated, operates three stores in a large metropolitan area

Superior Markets, Incorporated, operates three stores in a large metropolitan area

Subject:AccountingPrice: Bought3

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 $ 3,120,000 $ 748,800 1,723,488 419,328 1,396,512 329,472 South Store $ 1,248,000 686,400 561,600 East Store $ 1,123,200 617,760 505,440 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) 849,680 398, 320 1,248,000 $ 148,512 240,656 110,240 350,896 $ (21,424) 327,600 156,936 484,536 $ 77,064 281,424 131, 144 412,568 $ 92,872 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: Total North Store South Store East Store Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses Allocated on the basis of sales dollars. $ 248,560 194,480 46,800 312,000 16,640 21,840 9,360 $ 849,680 $ 72,800 53,040 11, 232 88,400 4,784 7,280 3,120 $ 240,656 $ 92,560 74,880 18,720 124,800 6,240 7,280 3, 120 $ 327,600 $ 83,200 66,560 16,848 98,800 5,616 7,280 3,120 $ 281,424 Total North Store South Store East Store Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses Allocated on the basis of sales dollars. $ 72,800 52,000 26,000 110,240 59,280 78,000 $ 398,320 $ 21,840 12,480 7,800 32,240 17,160 18,720 $ 110,240 $ 31,200 20,800 9,360 41,600 22,776 31,200 $ 156,936 $ 19,760 18,720 8,840 36,400 19,344 28,080 $ 131,144 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 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 $11,440 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,480 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 $4,160 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, 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 $6,240 per quarter. Required: 1. How much employee salaries will the company avoid if it closes the North Store? 2. How much employment taxes will the company avoid if it closes the North Store? 3. What is the financial advantage (disadvantage) of closing the North Store? 4. Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? 5. 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.) Financial advantage (disadvantage) < Required 2 Required 4 > Required 1 Required 2 Required 3 Required 4 Required 5 Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? The North Store should be closed The North Store should not be closed. < Required 3 Required 5 > Required 1 Required 2 Required 3 Required 4 Required 5 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? (Enter any "disadvantages" as a negative value.) Show less A Financial advantage (disadvantage) < Required 4 Required 5

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