can someone help me to solve this problem? Superior Markets, Inc. operates three

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can someone help me to solve this 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 Supenor Markets, Inc. Income Statement For the Quarter Ended September 30 North f South Store East Store $3,500,000 $780,000 $1,400,000 $1.320,000 1,925,000450,000749,000726,000 Total relStore Sales Cost of goods sold Gross margin Selling and administrative expenses 1.575,000330,000 651,000 594,000 Selling expenses 827,000 236,400 317.500 273,100 Administrative expenses Total expenses Net operating income (loss) 408,000 111,000 158.400138,600 1,235,000347,400 475,900 411,700 340,000 (17.400) S 175,100 182,300 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. North South StoreStore East Store Total Selling expenses Sales salanes Direct advertising General advertising Store rent Depreciation of store fixtures $228000 $62.600 77,000 88,400 170,00056,000 77 000 37,000 52 50011,700 21.000 19,800 325,000 90,000 125.000 110,000 18,500 22.500 0,500 5,100 7.5007 5007.50D 3,500 6 500 elirvery salaries Depreciation of delivery equipment 3,500 3,500 Total selling expenses 827,000 $236.400 $317,500 $273,100 Allocated on the basis of sales dollars.

Explanation / Answer

1. The schedule for teh workings is as follows

Net Impact on Operating Income of the Company

-68895

2) Since the Margin Lost is more than the Costs reduced it would be advisable to Continue north Store

3)

Particulars Amount Remarks Costs that Can be avoided Lease Rent on North Store 90000 Lease rent of north store is reduced Fixtures of North Store 0 As being Transferred to Other Divisions Reduction in Sales Salaries 62600 Sales salaries directly relating to North store is reduced Reduction in delivery Person Salary 4500 One delivery person with 4500 Salary reduced Depreciation on Delivery equipment 0 Delivery equipment is being used so no reduction Reduction in Direct advert and General advert 67700 Advertising Cost reduced Reduction in Store Management Salaries 11700 Out of 23500, GM with 11800 is retained so balance reduced Reduction in General office salaries 5900 Reduction in Insurance 6000 1/3rd is bein used for fixtures, so 2/3 rd reduction Reduction in Employment Taxes 12705 15% ofTotal reduction In salaries of Sales, delivery, Store and General office is84700 (62600+4500+11700+5900) 261105 Gross Margin Lost -330000 Since North store is closed entire margin is lost

Net Impact on Operating Income of the Company

-68895

2) Since the Margin Lost is more than the Costs reduced it would be advisable to Continue north Store

3)

Gross Margin Lost if north store is closed            330,000 Gross Margin Gained From East Store            282,750 Net Operating (Loss ) in Gross Margin            (47,250) Less Costs that can be avoided if north store is closed            261,105 Net advantage of Closing north store            213,855 4) Since there are savings through Gross Margin recovery and over all 213855 is net operating income increase it is advisable to close north store

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