70.2K

Verified Solution

Link Copied!

I need help with the following cost accounting problem:

CoursHeroTranscribedText: 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 Inc one Statement For the Quarter Ended Septelber 38 Total North Store South Store East Store Sales $ 3,333,333 5 792,333 $ 1,323,333 $ 1,183,333 Cost of goods sold 1,822,926 443, 520 726,3w 553,4W Gross margin 1,4?7,880 343,480 594,8M 534,6M Selling and administrative expenses: Selling expenses 893,700 254, 540 346,500 29?,650 Administrative expenses 421,300 116,600 155,990 133,710 Total expenses 1,328,000 371,140 512,490 436,330 Net operating income (loss) 5 157.1353 $ (221553) 5 81.1513 $ 93:230 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 ofthe selling and administrative expenses that are shown above is as follows: Total North Store South Store East Store Selling expenses: Total North Store South Store East Store Selling expenses: Sales salaries 5 262,900 5 ??,000 5 9?,900 5 83,000 Direct advertising 205,700 56,100 39,200 FEM-00 General advertising" 49, 500 11,380 19,300 1?,320 Store rent 330,000 93,500 132,000 104,500 Depreciation of store 'Fixtures 1?,600 5,050 6,600 5,940 Deliveryr salaries 23,100 ?,]"00 ?,?00 ?,?00 Depreciation of delivery equipment 9,903 3,303 3.303 3:333 Total selling expenses 5 3931739 5 254,549 5 345,539 5 297,553 *Allocated on the basis of sales dollars. Total Mirth Store South Store East Store Administrative expenses: Store managers' salaries 5 ??,000 5 23,100 5 33,000 5 28,900 General office salaries' 55,000 13,200 22,000 19,800 Insurance on fixtures and inventoryr 2?,500 3,250 9,900 9,350 Utilities 116,600 34,100 44,000 30, 500 Employment taxes $2,200 13,150 24,650 28,450 General officeother" 82,503 19,303 33,303 29993 Total administrative expenses 5 421,333 5 115,533 5 155,999 5 133,?19 *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 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 lling a position that would otherwise be lled by hiring a new employee at a salary of $12,100 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,200 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 $4,400 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. lCinethird of the insurance in the North Store is on the store's xtures. h. The "General ofce salaries" and "General officeother" relate to the overall management of Superior Markets, Incorporated. If the North Store were closed, one person in the general ofce could be discharged because ofthe decrease in overall workload. This person's compensation is $6,600 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, onefourth 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

Answer & Explanation Solved by verified expert

See Answer