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 South Store North as Total $3,300,000 1,815,000 1 ,485, 000 Store $760,000 433,000 327,000 Store Sales Cost of goods sold Gross margin Selling and administrative expenses: $1,320,000 711,000 609,000 $1,220,000 671,000 549,000 Selling expenses Administrative expenses 272,1060 133,600 405,700 $ 264,000 (16,400) 137,100 143,300 823,000 234,400 109,000 343,400 316,500 155,400 471,900 398,000 1,221,000 Total expenses Net operating income (loss) 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 North Store South Store as Total Store Selling expenses: Sales salaries Direct advertising General advertising* Storerent Depreciation of store fixtures Delivery salaries Depreciation of delivery $227,200 $. 65,500 81,800 79,900 53,000 18,300 182,000 49,500 315,000 17,500 21,900 54,000 11,400 75,000 19,800 88,000 123,000 104,000 6,300 7,300 3,300 4,900 7,300 3,300 6,300 7,300 9,900 3,300 equipment Total selling expenses 34,400 $316,500 $272,100 Allocated on the basis of sales dollars

Explanation / Answer

1. Total salary saved would be $32,500.

2. Employment tax that will be saved 4,875.

3. Financial advantages would be saving in administrative expenses. More margin on the products will increase.

4. Yes as there is no penalty for cancellation of the lease.

5. Financial advantages would be increase in gross margin. Saving of administrative expenses.

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