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 Costs Cost of goods sold Advertising Store administrative salaries Sales commissions Leases and utilities Allocated corporate support Total costs Net loss before tax benefit Tax benefit at 25% Net loss $ 12,300,000 $ 5,289,000 1,421,000 975,000 1,056,000 2,100,000 1,622,000 $ 12,463,000 $ (163,000) (40,750) $ (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: a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the Cornwall 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.
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 Costs Cost of goods sold Advertising Store administrative salaries Sales commissions Leases and utilities Allocated corporate support Total costs Net loss before tax benefit Tax benefit at 25% Net loss $ 12,300,000 $ 5,289,000 1,421,000 975,000 1,056,000 2,100,000 1,622,000 $ 12,463,000 $ (163,000) (40,750) $ (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: a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the Cornwall 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Swain Athletic Gear (SAG) operates six retall 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
Costs
Cost of goods sold
Advertising
Store administrative salaries
Sales commissions
Leases and utilities
Allocated corporate support
Total costs
Net loss before tax benefit
Tax benefit at 25%
Net loss
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:
a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the Cornwall
Street store.
b. What will be the effect on SAG's Income If the Cornwall Street store is closed?
$ 12,300,000
Complete this question by entering your answers in the tabs below.
Sales revenue
Costs
$ 5,289,000
1,421,000
975,000
1,056,000
2,100,000
1,622,000
$ 12,463,000
$ (163,000)
(40,750)
$ (122,250)
Required A Required B
Using the worksheet below, determine which revenues and costs are probably differential for the decision to close the
Cornwall Street store.
Cost of goods sold
Advertising
Store administrative salaries
Sales commissions
SWAIN ATHLETIC GEAR
Cornwall Street Store Income Statement
Differential Revenues and Costs
For the Year Ending February 28
Leases and utilities
Allocated corporate support
Total costs
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