Question

#3

Nov 29, 2025 | Posted Assignments

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
	Total		Uptown Store		Downtown Store			Westpark Store
Sales	$	3,300,000	$	1,300,000	$	600,000		$	1,400,000
Cost of goods sold		1,655,000		728,000		359,000			568,000

Gross margin		1,645,000		572,000		241,000			832,000

Selling and administrative expenses:
Selling expenses:
Direct advertising		118,100		34,000		42,000			42,100
General advertising*		16,000		6,303		2,909			6,788
Sales salaries		156,000		51,000		43,000			62,000
Delivery salaries		33,000		11,000		11,000			11,000
Store rent		208,000		69,000		63,000			76,000
Depreciation of store fixtures		46,050		17,600		8,600			19,850
Depreciation of delivery equipment		18,000		6,000		6,000			6,000

Total selling expenses		595,150		194,903		176,509			223,738

Administrative expenses:
Store management salaries		68,000		21,000		21,000			26,000
General office salaries*		48,000		18,909		8,727			20,364
Utilities		90,600		30,000		30,000			30,600
Insurance on fixtures and inventory		22,800		7,100		8,100			7,600
Employment taxes		38,000		11,800		12,500			13,700
General office expenses”other*		24,000		9,455		4,364			10,181

Total administrative expenses		291,400		98,264		84,691			108,445

Total operating expenses		886,550		293,167		261,200			332,183

Net operating income (loss)	$	758,450	$	278,833	$	(20,200	)	$	499,817

*Allocated on the basis of sales dollars.

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 $7,000 per month, or $21,000 per quarter. If the store were not closed, a new employee would be hired to fill the other position at a salary of $6,000 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 $8,500 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 $8,000 per quarter.

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.)


		$
Less costs that can be avoided:
	$









		$

2.

Based on your computations in (1) above, what recommendation would 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 the Uptown Store would increase by $200,000 per quarter due to loyal customers shifting their buying to the Uptown Store. The Uptown Store has ample capacity to handle the increased sales, and its gross margin is 44% of sales.

a.	Calculate the Net advantage of closing the Downtown Store. (Negative amount should be indicated with a minus sign. Do not round intermediate calculations. Round your intermediate and final answers to the nearest dollar amount. Omit the “$” sign in your response.)