Calculate the net advantage of closing the north store

Assignment Help Accounting Basics
Reference no: EM131983772

Problem

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


Total

North
Store

South
Store

East
Store

  Sales

$

3,000,000


$

720,000


$

1,200,000


$

1,080,000


  Cost of goods sold


1,657,200



403,200



660,000



594,000















  Gross margin


1,342,800



316,800



540,000



486,000















  Selling and administrative expenses:













      Selling expenses:


817,000



231,400



315,000



270,600


      Administrative expenses


383,000



106,000



150,900



126,100


 













      Total expenses


1,200,000



337,400



465,900



396,700


 













      Net operating income (loss)

$

142,800


$

(20,600

)

$

74,100


$

89,300


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 is as follows:


Total

North
Store

South
Store

East
Store

Selling expenses:









Sales salaries  

$

239,000

$

70,000

$

89,000

$

80,000

Direct advertising


187,000


51,000


72,000


64,000

General advertising*


45,000


10,800


18,000


16,200

Store rent


300,000


85,000


120,000


95,000

Depreciation of store fixtures


16,000


4,600


6,000


5,400

Delivery salaries


21,000


7,000


7,000


7,000

Depreciation of delivery equipment


9,000


3,000


3,000


3,000

Total selling expenses

$

817,000

$

231,400

$

315,000

$

270,600

*Allocated on the basis of sales dollars.


Total

North
Store

South
Store

East
Store

    Administrative expenses:









      Store management salaries

$

70,000

$

21,000

$

30,000

$

19,000

      General office salaries*


50,000


12,000


20,000


18,000

      Insurance on fixtures and inventory


25,000


7,500


9,000


8,500

     Utilities


106,000


31,000


40,000


35,000

      Employment taxes


57,000


16,500


21,900


18,600

      General office -other*


75,000


18,000


30,000


27,000

    Total administrative expenses

$

383,000

$

106,000

$

150,900

$

126,100

*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 $11,000 per quarter. The general manager of the North Store would be retained at her normal salary of $12,000 per quarter. All other employees in the 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's employment taxes are 15% of 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:

1. Prepare a schedule showing the change in revenues and expenses and the impact on the company's overall net operating income that would result if the North Store were closed.

2. Based on your computations in (1) above, what recommendation would you make to the management of Superior Markets, Inc.?

3. Assume that if the North Store were closed, at least one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. The East Store has enough capacity to handle the increased sales. You may assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in that store.

a. Calculate the net advantage of closing the North Store.

b. What recommendation would you make to the management of Superior Markets, Inc.?

Reference no: EM131983772

Questions Cloud

Why have robots became prevalent in manufacturing : 1. Why have robots became prevalent in manufacturing? Explain your answer using examples.
What similar outsourcing developments have we seen : What similar outsourcing developments have we seen with the financial supply chain? What might the risk issues be here?
How dose your explanations given in class : How dose your explanations given in class for why pioneers may tend to fall behind?
Management and marketing research : Conflict: What are some of the basic causes of conflict between management and marketing research?
Calculate the net advantage of closing the north store : Calculate the net advantage of closing the North Store. What recommendation would you make to the management of Superior Markets, Inc.?
What is the maximum amount that you should be spend : What is the maximum amount, over and above what you have already spent, that you should be willing to spend to assure the sale?
Challenge of change by adopting multiple strategies : Consider what qualities a good planned change programme has, and outline the steps in the planned change process
What is the crossover rate for these two projects : Seether, Inc., has the following two mutually exclusive projects available. What is the crossover rate for these two projects?
Position of general manager of a service division : You have just been promoted to the position of general manager of a service division that provides in-flight meals for six large, global airlines.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd