Problem
The manager of the Nebraska division of Super Stores, Inc. is concerned about the performance of the North Platte store, which has been running losses for several years. His boss, the president of Midwest Region, thinks that the store should be closed. Prepare an analysis, defending either closing the store or keeping it open.
Income Statement (in $000)
|
Division
|
Kearney
|
Grand Island
|
Norfolk
|
North Platte
|
|
Sales
|
6,995
|
1,721
|
1,719
|
2,044
|
1,511
|
|
COGS
|
4,071
|
991
|
973
|
1,202
|
905
|
|
Gross Margin
|
2,924
|
730
|
746
|
842
|
606
|
|
Payroll
|
1,351
|
306
|
311
|
409
|
325
|
|
Occupancy
|
458
|
108
|
111
|
135
|
104
|
|
Advertising
|
266
|
66
|
54
|
75
|
71
|
|
Administrative
|
608
|
152
|
152
|
152
|
152
|
|
Total Expense
|
2,683
|
632
|
628
|
771
|
652
|
|
Net Income
|
241
|
98
|
118
|
71
|
-46
|
Notes:
1) $120,000 of advertising cost relates to the entire division, and is allocated equally to each store. The remainder is store-specific local advertising.
2) Administrative costs consist of $200,000 of divisional overhead and $408,000 of general corporate overhead allocated to the division.
These costs are allocated equally to each store.
3) All payroll and occupancy costs relate solely to each local store.
4) About 60% of occupancy cost for each store is rent expense under leases running 4 to 8 years, with the remainder being utilities and maintenance.