Superior Markets, Inc., operates three stores in a large metropolitan area. A se

Question

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 North Store South Store East Store Total $3,840,000 $1,000,000 $1,480,000 $1,360,000 Sales Cost of goods sold 2,122,000 560,000 814,000 748,000 Gross margin 1,718,000 440,000 666,000 612,000 Selling and administrative expenses Selling expenses Administrative expenses 1,084,400 562,220 321,000 162,800 403,200 212,340 360,200 187,080 Total expenses 1,646,620 483,800 615,540 547,280 Net operating income (loss) S 71,380 S (43,800) S 50,460 S 64,720 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 vour use

Explanation / Answer

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1.

2. Store should not be closed as income will be lost to the tune of $63470.

3a.

3b. North store can be closed in this case.

Gross Margin Lost if Downtown Store Closed 440000 Cost Avoided if store closed: Direct Advertising 65000 Since store closed, no advertising needed Sales Salaries 98000 Store closed, no sales team Delivery Salaries 18000 Store Rent 99000 Depreciation of Store Fixture 0 Since being moved to other store, cant be avoided Depreciation of Delivery Equipment 0 Since being moved to other store, cant be avoided Store Management Salaries 19000 New poistion to be filled up if store to be operated at 5000 per month General Office Salaries 10000 as per Note H in question Utilities 45000 Insurance on Fixtures 0 Since being moved to other store, cant be avoided Insurance on Inventories 11700*2/3 780 Since 1/3 is of Fixture, for inventory is 2/3 Employees Benefit (15% of 98000+18000+19000+10000) 21750 376530 Income lost if Downtown Store closed 63470

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