GNB+13e+Solutions+Ch+13 - P13-22 Superior Markets, Inc. 1....

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P13-22 Superior Markets, Inc. 1. Change in Net Operating Income if North Store is Closed 1. Alternative Solution Assume: North Store is closed Close Keep BENEFITS North Store North Store Difference Sales salaries avoided $70,000 Sales $- $720,000 $(720,000) Direct advertising avoided $51,000 Cost of goods sold $- $403,200 $(403,200) Store rent avoided $85,000 Gross margin $- $316,800 $(316,800) Delivery salaries avoided $4,000 Selling expenses: $- Store management salaries avoided $9,000 ($21,000 - $12,000) Sales salaries $- $70,000 $(70,000) Salary of new employee avoided $11,000 Direct advertising $- $51,000 $(51,000) General office salaries avoided $6,000 General advertising $10,800 $10,800 $- Insurance on inventories avoided $5,000 ($7,500 x 2/3) Store rent $- $85,000 $(85,000) Utilities avoided $31,000 Depreciation, store fixtures $4,600 $4,600 $- Employment taxes avoided $15,000 (Below) Delivery salaries $3,000 $7,000 $(4,000) Total costs avoided $287,000 Depreciation, delivery equipment $3,000 $3,000 $- COSTS Total selling expenses $21,400 $231,400 $(210,000) Lost gross margin $316,800 (Given) Administrative expenses: $- NET GAIN (LOSS) $(29,800) Store management salaries $12,000 $32,000 $(20,000) (Add new employee) General office salaries $6,000 $12,000 $(6,000) Salaries avoided: $2,500 $7,500 $(5,000) Sales salaries $70,000 Utilities $- $31,000 $(31,000) Delivery salaries $4,000 Employment taxes $3,150 $18,150 $(15,000) (Add new employee) Store management salaries $9,000 General office, other $18,000 $18,000 $- Salary of new employee $11,000 Total administrative expenses $41,650 $118,650 $(77,000) General office salaries $6,000 Total operating expenses $63,050 $350,050 $(287,000) Total salaries avoided $100,000 Net operating income $(63,050) $(33,250) $(29,800) Employment tax rate (15%) 0.15 Employment tax avoided $15,000 2. Recommendation Based on the above analysis, the North Store should not be closed. Net operating income will decrease by $29,800 if this store were closed.
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GNB+13e+Solutions+Ch+13 - P13-22 Superior Markets, Inc. 1....

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