Bobbi Ford Retailing, Inc., operates three stores between Fort Myers and Naples.
ID: 2591364 • Letter: B
Question
Bobbi Ford Retailing, Inc., operates three stores between Fort Myers and Naples. A segmented absorption costing income statement for the company for the last quarter is given below Bobbi Ford Retailing, Inc. Income Statement For the Quarter Ended September 30 East North Store South Store Total 3,400,000 $740,000 $1,360,000 $1,300,000 1,870,000 420,000 735,000 715,000 Cost of goods sold Gross margin Seling and aive expenses 1,530,000 320,000 625,000 585,000 Selling expenses: Administrative expenses 825,000 235,400 317,000 272,600 156,900 136,100 403,000 0,000 Total expenses 1,228,000 345,400 473,900 408,700 Net operating income (loss) s 302,000 $ (25,400) 151,100 176,30o Store has consistently shown losses over the past two years. These losses over the years have cause management to consider closing the store. Bobbi has asked you to make a recommendation as to the store should be closed or kept open. The following additional information is available for your The North a. The breakdown of the selling and administrative expenses is as follows: North South East Total Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store foxtures Delivery salaries Depreciation of delivery equipment $220,600 S 64,500 $ 79,400 76,700 183,000 55,000 76,000 52,000 51,000 11,100 20,400 19,500 320,000 89,000 124,000 107,000 6,600 7,400 18,000 22,200 5,000 7.400 6,400 7,400 10,200 3,400 3,400 3,400 Total selling expenses $825,000 $235,400 $317,000 $272,600Explanation / Answer
1.
2. The North Store should not be closed.
3. a.
b. The North Store should be closed.
If the North Store is closed down $ $ Lost Gross Margin (320,000) Avoidable Costs Direct Advertising 55,000 Store Rent 89,000 Insurance on inventory 5,800 Sales Salaries 64,500 Delivery Salaries 4,400 Store Management Salaries 11,800 Salary of New Manager 10,200 General Office Salaries 5,600 Utilities 32,685 Employment Taxes $ ( 64,500 + 4,400 + 11,800 + 10,200 + 5,600) x 15 % 14,475 Total Avoidable Costs 293,460 Decrease in Net Operating Income (26,540)