Reference no: EM131206481
Power Music owns five music stores, where it sells music, instruments, and supplies. In addition, it rents instruments. At the end of last year, the new accounts showed that although the business as a whole was profitable, the Fifth Avenue store had shown a substantial loss. The income statement for the Fifth Avenue store for last month follows: POWER MUSIC Fifth Avenue Store Partial Income Statement Sales $ 1,900,000 Cost of goods sold 1,655,000 Gross margin $ 245,000 Costs: Payroll, direct labor, and supervisiona $ 148,000 Rentb 43,300 State taxesc 7,000 Insurance on inventory 50,200 Depreciationd 22,000 Administration and general officee 55,000 Interest for inventory carrying costsf 13,000 Total costs 338,500 Loss $ (93,500 ) Additional computations: a These costs would be saved if the store was closed. b The rent would be saved if the store was closed. c Assessed annually on the basis of average inventory on hand each month. d 8.5 percent of cost of departmental equipment. The equipment has no salvage value, and Power Music would incur no costs in scrapping it. eAllocated on the basis of store sales as a fraction of total company sales. Management estimates that 5% of these costs allocated to the Fifth Avenue store could be saved if the store was closed. f Based on average inventory quantity multiplied by the company's borrowing rate for three-month loans. Analysis of these results has led management to consider closing the Fifth Avenue store. Members of the management team agree that keeping the Fifth Avenue store open is not essential to maintaining good customer relations and supporting the rest of the company's business. In other words, eliminating the Fifth Avenue store is not expected to affect the amount of business done by the other stores.
Required: a. Calculate the cost savings in closing the Fifth Avenue store?
b. Should the Fifth Avenue store be closed? Yes No
Explain the need for full disclosure in financial reporting
: Explain the need for full disclosure in financial reporting. Identify possible consequences of failing to properly disclose certain items in financial statements. What is the full disclosure principle in accounting? Why has disclosure increased subst..
|
Governmental funds-proprietary funds and fiduciary funds
: For each of the following fund types, indicate its fund category by placing either “GF” for governmental funds, “PF” for proprietary funds, or “FF” for fiduciary funds in the space provided before each item.
|
Process inventory account for the fabricating department
: The Fabricating Department started the current month with a beginning Work in Process inventory of $10,500. During the month, it was assigned the following costs: direct materials, $76,500; direct labor, $24,500; and factory overhead, 60% of direct l..
|
Forecast for three-period weighted moving average
: Given the following information: Period May June July August Demand 62K 73K 68K what is the August forecast for a 3-period weighted moving average if the weights for May, June and July are 1, 2, and 3, respectively?
|
Calculate the cost savings in closing the fifth avenue store
: Power Music owns five music stores, where it sells music, instruments, and supplies. In addition, it rents instruments. At the end of last year, the new accounts showed that although the business as a whole was profitable, the Fifth Avenue store had ..
|
What is the highest acceptable manufacturing cost
: Dino's, Inc., makes a variety of T-shirts with logos. The company has discovered a new market for sweatshirts with logos. Market research indicates that a sweatshirt like this would sell well in the market priced at $32.40 each. Dino's desires an ope..
|
What is the cost of budgeted purchases of direct materials
: Norton Manufacturing expects to produce 2,800 units in January and 3,800 units in February. Norton budgets $50 per unit for direct materials. Indirect materials are in significant and not considered for budgeting purposes. Desired ending balance for ..
|
How does it function in the cost of capital
: Think about and give a brief answer to: What is cost of equity and how does it function in the cost of capital? To increase a firm’s value, results should show your WACC is moving in which direction? What are those skills?
|
Walter recognize as result of the current distribution
: Walter receives cash of $18,000 and land with a fair market value of $75,000 (adjusted basis of $50,000) in a current distribution. His basis in his partnership is $16,000. What amount of gain must Walter recognize as a result of the current distribu..
|