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AH $13-2$ Dropping or Retaining a Segment LO $13-2$

Annie's Homemade is deciding whether to retain or drop a $700-$square feet satellite shop location. The company makes the ice cream sold at the satellite location at its larger main shop location. Twice a month the company transports ice cream from its main shop to the satellite location. The company gathered the following additional information to assist in making the decision:

Annual sales at the satellite location $ $130,000$

Ingredient costs as a percent of sales $30\%$

Monthly rent at satellite location $($the lease is cancelable$)$ $ $2,200$

Average monthly utility expense at satellite location $ $200$

Part$-$time store managers$$ combined annual wages at satellite location $ $36,000$

Annual hourly wages paid to additional employees at satellite location $ $32,000$

Annual hours spent by salaried managers at the main shop location supporting the satellite location $600$

Other annual expenses:

Annual depreciation expense on satellite store$$s equipment $($no salvage value$)$ $ $5,000$

Annual pickup truck and cargo trailer depreciation, insurance, registration, and vehicle tax $ $16,000$

Annual manufacturing overhead at main shop location $($e$.$g$.,$ equipment depreciation, rent, utilities, insurance, etc.$)$ $ $55,000$

The salaried managers working at the main shop will be retained whether the satellite store closes or remains open. The part$-$time store managers and additional hourly employees working at the satellite location would not be retained if it closes.

Required:

$1.$ What is the financial advantage $($disadvantage$)$ of closing the satellite shop location $($on an annual basis$)?$

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