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Annie's Homemade is deciding whether to retain or drop a 700-square feet satellite shop location. The company makes the ice cream sold at the satellite location at its larger main shop location. Twice a month the company transports ice cream from its main shop to the satellite location. The company gathered the following additional information to assist in making the decision: Annual sales at the satellite location Ingredient costs as a percent of sales Monthly rent at satellite location (the lease is cancelable). Average monthly utility expense at satellite location. Part-time store managers' combined annual wages at satellite location Annual hourly wages paid to additional employees at satellite location. Annual hours spent by salaried managers at the main shop location supporting the satellite location i Other annual expenses: Annual depreciation expense on satellite store's equipment (no salvage value) Annual pickup truck and cargo trailer depreciation, insurance, registration, and vehicle taxi Annual manufacturing overhead at main shop location (e.g., equipment depreciation, rent, utilities, insurance, etc.) The salaried managers working at the main shop will be retained whether the satellite store closes or remains open. The part-time store managers and additional hourly employees working at the satellite location would not be retained if it closes. Required: 1. What is the financial advantage (disadvantage) of closing the satellite shop location (on an annual basis)? The financial advantage (disadvantage) is 26,800 $ $ 130,000 $ 2,200 $ 200 $ 35,000 $ 32,000 600 30% $ 5,000 $ 16,000 $ 55,000

Annie's Homemade is deciding whether to retain or drop a 700-square feet satellite shop location. The company makes the ice cream sold at the satellite location at its larger main shop location. Twice a month the company transports ice cream from its main shop to the satellite location. The company gathered the following additional information to assist in making the decision: Annual sales at the satellite location Ingredient costs as a percent of sales Monthly rent at satellite location (the lease is cancelable). Average monthly utility expense at satellite location. Part-time store managers' combined annual wages at satellite location Annual hourly wages paid to additional employees at satellite location. Annual hours spent by salaried managers at the main shop location supporting the satellite location i Other annual expenses: Annual depreciation expense on satellite store's equipment (no salvage value) Annual pickup truck and cargo trailer depreciation, insurance, registration, and vehicle taxi Annual manufacturing overhead at main shop location (e.g., equipment depreciation, rent, utilities, insurance, etc.) The salaried managers working at the main shop will be retained whether the satellite store closes or remains open. The part-time store managers and additional hourly employees working at the satellite location would not be retained if it closes. Required: 1. What is the financial advantage (disadvantage) of closing the satellite shop location (on an annual basis)? The financial advantage (disadvantage) is 26,800 $ $ 130,000 $ 2,200 $ 200 $ 35,000 $ 32,000 600 30% $ 5,000 $ 16,000 $ 55,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Annie's Homemade is deciding whether to retain or drop a 700-square feet satellite shop location. The company makes the ice cream sold at the satellite location at its larger main shop location. Twice a month the company transports ice cream from its main shop to the satellite location. The company gathered the following additional information to assist in making the decision: Annual sales at the satellite location i Ingredient costs as a percent of sales Monthly rent at satellite location (the lease is cancelable). Average monthly utility expense at satellite location. Part-time store managers' combined annual wages at satellite location Annual hourly wages paid to additional employees at satellite location Annual hours spent by salaried managers at the main shop location supporting the satellite location i Other annual expenses: Annual depreciation expense on satellite store's equipment (no salvage value) Annual pickup truck and cargo trailer depreciation, insurance, registration, and vehicle tax Annual manufacturing overhead at main shop location (e.g., equipment depreciation, rent, utilities, insurance, etc.) The salaried managers working at the main shop will be retained whether the satellite store closes or remains open. The part-time store managers and additional hourly employees working at the satellite location would not be retained if it closes. Required: 1. What is the financial advantage (disadvantage) of closing the satellite shop location (on an annual basis)? The financial advantage (disadvantage) is 26,800 $ $ 130,000 30% $ 2,200 $ 200 $ 36,000 $ 32,000 600 $5,000 $ 16,000 $ 55,000
Transcribed Image Text:Annie's Homemade is deciding whether to retain or drop a 700-square feet satellite shop location. The company makes the ice cream sold at the satellite location at its larger main shop location. Twice a month the company transports ice cream from its main shop to the satellite location. The company gathered the following additional information to assist in making the decision: Annual sales at the satellite location i Ingredient costs as a percent of sales Monthly rent at satellite location (the lease is cancelable). Average monthly utility expense at satellite location. Part-time store managers' combined annual wages at satellite location Annual hourly wages paid to additional employees at satellite location Annual hours spent by salaried managers at the main shop location supporting the satellite location i Other annual expenses: Annual depreciation expense on satellite store's equipment (no salvage value) Annual pickup truck and cargo trailer depreciation, insurance, registration, and vehicle tax Annual manufacturing overhead at main shop location (e.g., equipment depreciation, rent, utilities, insurance, etc.) The salaried managers working at the main shop will be retained whether the satellite store closes or remains open. The part-time store managers and additional hourly employees working at the satellite location would not be retained if it closes. Required: 1. What is the financial advantage (disadvantage) of closing the satellite shop location (on an annual basis)? The financial advantage (disadvantage) is 26,800 $ $ 130,000 30% $ 2,200 $ 200 $ 36,000 $ 32,000 600 $5,000 $ 16,000 $ 55,000
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