Thrifty Markets - Case

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Chapter 12 Pre-Built Problems

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award:

5.

10 points Thrifty Markets, Inc., operates three stores in a large metropolitan area. The company’s segmented absorption costing income statement for the last quarter is given below: Thrifty Markets, Inc. Income Statement For the Quarter Ended March 31 Uptown Total Store $3,300,000 $1,300,000 1,612,000 689,000 1,688,000 611,000

Sales Cost of goods sold Gross margin

Downtown Westpark Store Store $600,000 $1,400,000 357,000 566,000 243,000 834,000

Selling and administrative expenses: Selling expenses: Direct advertising General advertising* Sales salaries Delivery salaries Store rent Depreciation of store fixtures Depreciation of delivery equipment Total selling expenses Administrative expenses: Store management salaries General office salaries* Utilities Insurance on fixtures and inventory Employment taxes General office expenses—other* Total administrative expenses Total operating expenses Net operating income (loss) *Allocated on the basis of sales dollars.

119,700 10,000 151,000 36,000 201,000 46,020 24,000 587,720

36,000 3,939 46,000 12,000 67,000 17,500 8,000 190,439

41,000 1,818 42,000 12,000 62,000 8,700 8,000 175,518

42,700 4,243 63,000 12,000 72,000 19,820 8,000 221,763

65,000 50,000 92,600 24,600 37,800 24,000 294,000 881,720 $ 806,280

21,000 19,697 30,000 7,700 12,000 9,455 99,852 290,291 $ 320,709

18,000 9,091 32,000 8,700 12,100 4,364 84,255 259,773 $ (16,773)

26,000 21,212 30,600 8,200 13,700 10,181 109,893 331,656 $ 502,344

Management is very concerned about the Downtown Store’s inability to show a profit, and consideration is being given to closing the store. The company has asked you to make a recommendation as to what course of action should be taken. The following additional information is available about the store: a. The manager of the store has been with the company for many years; he would be retained and transferred to another position in the company if the store were closed. His salary is $6,000 per month, or $18,000 per quarter. If the store were not closed, a new employee would be hired to fill the other position at a salary of $5,000 per month. b. The lease on the building housing the Downtown Store can be broken with no penalty. c. The fixtures being used in the Downtown Store would be transferred to the other two stores if the Downtown Store were closed. d. The company’s employment taxes are 11% of salaries. e. A single delivery crew serves all three stores. One delivery person could be discharged if the Downtown Store were closed; this person’s salary amounts to $9,000 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but it does eventually become obsolete. f. One-third of the Downtown Store’s insurance relates to its fixtures. g. The general office salaries and other expenses relate to the general management of Thrifty Markets, Inc. The employee in the general office who is responsible for the Downtown Store would be discharged if the store were closed. This employee’s compensation amounts to $9,000 per quarter.

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2/28/2012 10:18 AM

Chapter 12 Pre-Built Problems

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Required: 1. Prepare a schedule showing the change in revenues and expenses and the impact on the overall company net operating income that would result if the Downtown Store were closed. (Input all amounts as positive values. Do not round intermediate calculations. Round your intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Gross margin lost if the store is closed Less costs that can be avoided: Direct advertising Sales salaries Delivery salaries Store rent Store management salaries General office salaries Utilities Insurance on inventories Employment taxes Decrease in company net operating income $ 41,000 42,000 9,000 62,000...
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