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Income statement for Superior Markets Inc.

See the attached file.

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented income statement for the company for the last quarter is given below:

SUPERIOR MARKETS, INC.
Income Statement
For the Quarter Ended September 30

North South East
Total Store Store Store

Sales $ 3,000,000 $ 720,000 $1,200,000 $1,080,000
Cost of goods sold 1 ,657,200 403,200 660,000 594,000
Gross Margin 1,342,800 316,800 540,000 486,000

Operating expenses:
Selling expenses 817,000 231,400 315,000 270,600
Administrative expenses 383,000 106,000 150,900 126,100
Total expenses 1,200,000 337,400 465,900 396,700
Net operating income (loss) $142,800 $(20,600)$74,100$89,300

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 retained 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 East Store
Total Store Store
Selling expenses:

Sales salaries (f) $239,000 $70,000 $89,000 $80,000
Direct advertising 187,000 51,000 72,000 64,000
General advertising* 45,000 10,800 18,000 16,200
Store rent (b) 300,000 85,000 120,000 95,000
Depreciation of store fixtures(c)16,000 4,600 6,000 5,400
Delivery salaries (e,f) 21,000 7,000 7,000 7,000
Depreciation of delivery equipment (e) 9,000 3,000 3,000 3,000
Total selling expenses $817,000 $231,400 $315,000 $270,600

*Allocated on the basis of sales dollars. Advertising would remain at the same level if North Store were closed and still be a total of $45,000 for the company.

North South East
Total Store Store Store
Administrative
expenses:
Store management
salaries(d,f) $70,000 $21,000 $30,000 $19,000
General office
salaries*(f,h) 50,000 12,000 20,000 18,000
Insurance on fixtures
and inventory (g)25,000 7,500 9,000 8,500
Utilities 106,000 31,000 40,000 35,000
Employment taxes (f)57,000 16,500 21,900 18,600
General office other* (i)75,000 18,000 30,000 27,000
Total administrative
expenses $383,000 $106,000 $150,900 $126,100
*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 store fixtures being used in the North Store would be retained and transferred to the other stores if the North Store were closed.
d. One of the store managers of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee. The general manager of the North Store would be retained at her normal salary of $12,000 per quarter. All other employees and managers 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 $4,000 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's employment taxes are 15% of salaries.
g. One-third of the insurance in the North Store is on the store's fixtures which will be transferred to the other stores along with the fixtures.
h. The "General office salaries" relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's salary is $6,000 per quarter.

Please complete attached Excel spreadsheet.

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The solution provides an income statement for Superior Markets Inc.

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