Question

Thrifty Markets, Inc., operates three stores in a largemetropolitan area. The company’s segmented absorption costingincome statement for the last quarter is given below:

Thrifty Markets, Inc. Income Statement For the Quarter Ended March 31
	Total			Uptown Store			Downtown Store			Westpark Store
Sales	$	3,100,000		$	1,200,000		$	600,000		$	1,300,000
Costof goods sold		1,565,000			648,000			356,000			561,000
Gross margin		1,535,000			552,000			244,000			739,000
Selling and administrative expenses:
Selling expenses:
Directadvertising		121,600			37,000			42,000			42,600
General advertising*		17,000			6,581			3,290			7,129
Sales salaries		155,000			51,000			42,000			62,000
Delivery salaries		36,000			12,000			12,000			12,000
Store rent		205,000			69,000			62,000			74,000
Depreciation of storefixtures		46,240			17,600			8,800			19,840
Depreciation of deliveryequipment		27,000			9,000			9,000			9,000
Total selling expenses		607,840			202,181			179,090			226,569
Administrative expenses:
Store management salaries		67,000			22,000			18,000			27,000
General office salaries*		44,000			17,032			8,516			18,452
Utilities		96,600			32,000			32,000			32,600
Insurance on fixtures andinventory		25,200			7,900			8,900			8,400
Employment taxes		36,600			11,200			12,300			13,100
General officeexpenses—other*		21,000			8,129			4,065			8,806
Total administrative expenses		290,400			98,261			83,781			108,358
Total operating expenses		898,240			300,442			262,871			334,927
Netoperating income (loss)	$	636,760		$	251,558		$	(18,871	)	$	404,073

*Allocated on the basis of sales dollars.

Management is very concerned aboutthe Downtown Store’s inability to show a profit, and considerationis being given to closing the store. The company has asked you tomake a recommendation as to what course of action should be taken.The following additional information is available about thestore:

a.	The manager of the store has been with the company for manyyears; he would be retained and transferred to another position inthe company if the store were closed. His salary is $6,000 permonth, or $18,000 per quarter. If the store were not closed, a newemployee would be hired to fill the other position at a salary of$5,000 per month.
b.	The lease on thebuilding housing the Downtown Store can be broken with nopenalty.
c.	The fixturesbeing used in the Downtown Store would be transferred to the othertwo stores if the Downtown Store were closed.
d.	The company’semployment taxes are 14% of salaries.
e.	A single delivery crew serves all three stores. One deliveryperson could be discharged if the Downtown Store were closed; thisperson’s salary amounts to $9,500 per quarter. The deliveryequipment would be distributed to the other stores. The equipmentdoes not wear out through use, but it does eventually becomeobsolete.
f.	One-third of theDowntown Store’s insurance relates to its fixtures.
g.	The general office salaries and other expenses relate to thegeneral management of Thrifty Markets, Inc. The employee in thegeneral office who is responsible for the Downtown Store would bedischarged if the store were closed. This employee’s compensationamounts to $5,000 per quarter.

Required:
1.	Prepare a schedule showing the change in revenues and expensesand the impact on the overall company net operating income thatwould result if the Downtown Store were closed. (Input allamounts as positive values. Do not round your intermediatecalculations. Round your final answers to the nearest dollaramount.)

Thrifty Markets, Inc. Schedule showing the change in revenues and expenses For the Quarter Ended March 31
(Click to select)Gross margin lost if the store isclosedGross margin gained if the store is closed		$
Lesscosts that can be avoided:
(Click to select)StorerentDirect advertisingInsurance on inventoriesStore managementsalariesGeneral advertisingEmployment taxesGeneral officesalariesDelivery salariesSales salariesUtilitiesGeneral officeexpenses-other	$
(Click toselect)UtilitiesDelivery salariesInsurance on inventoriesGeneraladvertisingGeneral office salariesStore rentDirect advertisingSalessalariesEmployment taxesStore management salariesGeneral officeexpenses-other
(Click toselect)UtilitiesInsurance on inventoriesDirect advertisingGeneraladvertisingGeneral office expenses-otherSales salariesEmploymenttaxesDelivery salariesStore rentStore management salariesGeneraloffice salaries
(Click toselect)UtilitiesStore management salariesGeneral advertisingGeneraloffice salariesDelivery salariesInsurance on inventoriesDirectadvertisingSales salariesEmployment taxesGeneral officeexpenses-otherStore rent
(Click to select)SalessalariesDelivery salariesDirect advertisingInsurance oninventoriesStore management salariesGeneral officeexpenses-otherUtilitiesGeneral office salariesStore rentEmploymenttaxesGeneral advertising
(Click to select)DeliverysalariesEmployment taxesDirect advertisingInsurance oninventoriesGeneral advertisingUtilitiesSales salariesGeneral officeexpenses-otherGeneral office salariesStore management salariesStorerent
(Click to select)GeneraladvertisingStore management salariesUtilitiesStore rentDirectadvertisingDelivery salariesSales salariesInsurance oninventoriesGeneral office expenses-otherGeneral officesalariesEmployment taxes
(Click toselect)UtilitiesGeneral office salariesGeneral advertisingSalessalariesStore management salariesDelivery salariesGeneral officeexpenses-otherDirect advertisingStore rentInsurance oninventoriesEmployment taxes
(Click toselect)Employment taxesDirect advertisingUtilitiesDeliverysalariesStore rentGeneral office salariesStore managementsalariesGeneral office expenses-otherSales salariesInsurance oninventoriesGeneral advertising
(Click to select)Decrease in company net operatingincomeIncrease in company net operating income		$

2.

Based on your computations in (1) above, what recommendationwould you make to the management of Thrifty Markets, Inc.?

	The Downtown Store should not be closed.
	The Downtown Store should be closed.

3.	Assume that if the Downtown Store were closed, sales in theUptown Store would increase by $400,000 per quarter due to loyalcustomers shifting their buying to the Uptown Store. The UptownStore has ample capacity to handle the increased sales, and itsgross margin is 46% of sales.

a.	Calculate the Net advantage of closing the Downtown Store.(Round your intermediate and final answersto the nearest dollar amount.)

Netadvantage of closing the Downtown Store

$

b.

Whatrecommendation would you make to the management of Thrifty Markets,Inc.?

	The Downtown Store should be closed.
	The Downtown Store should not be closed.