Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent income statement for the Cornwall store follows. SWAIN ATHLETIC GEAR Cornwall Street Store Income Statement For the Year Ending February 28 Sales revenue $ 12,300,000 Costs Cost of goods sold $ 5,289,000 Advertising 1,421,000 Store administrative salaries 975,000 Sales commissions 1,056,000 Leases and utilities 2,100,000 Allocated corporate support 1,622,000 Total costs $ 12,463,000 Net loss before tax benefit $ (163,000) Tax benefit at 25% (40,750) Net loss $ (122,250) The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is closed, neither total corporate support costs nor operations or costs of the other stores are expected to change. Required: Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the Cornwall Street store. What will be the effect on SAG's income if the Cornwall Street store is closed?

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter5: Accounting For Retail Businesses

Section: Chapter Questions

Problem 41E: Cost of goods sold and related items The following data were extracted from the accounting records...

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Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent income statement for the Cornwall store follows.

SWAIN ATHLETIC GEAR
Cornwall Street Store Income Statement
For the Year Ending February 28
Sales revenue	$ 12,300,000
Costs
Cost of goods sold	$ 5,289,000
Advertising	1,421,000
Store administrative salaries	975,000
Sales commissions	1,056,000
Leases and utilities	2,100,000
Allocated corporate support	1,622,000
Total costs	$ 12,463,000
Net loss before tax benefit	$ (163,000)
Tax benefit at 25%	(40,750)
Net loss	$ (122,250)

The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is closed, neither total corporate support costs nor operations or costs of the other stores are expected to change.

Required:

Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the Cornwall Street store.
What will be the effect on SAG's income if the Cornwall Street store is closed?

Sales revenue
Costs
Cost of goods sold
Advertising
ƏWAIN ATTILLTIC OLAR
Cornwall Street Store Income Statement
Differential Revenues and Costs
For the Year Ending February 28
Store administrative salaries
Sales commissions
Leases and utilities
Allocated corporate support
Total costs
Net differential loss before income tax benefit
Tax benefit at 25%
Net differential loss from store
$ 12,300,000 Differential
$ 5,289,000 Differential
1,421,000 Differential
975,000 Differential
1,056,000 Differential
2,100,000 Differential
1,622,000 Not differential
$ 12,463,000
(40,750) Differential
< Required A
Required B >

a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the Cornw
Street store.
b. What will be the effect on SAG's income if the Cornwall Street store is closed?
Complete this question by entering your answers in the tabs below.
Required A Required B
What will be the effect on SAG's income if the Cornwall Street store is closed?
SAG's Income will
decrease
by
< Required A
Required B >

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