Question

Shucker’s Sea Food has three restaurants as shown below.

Management is concerned about the continued losses shown by Store A. They seek a recommendation from you, as a recent MBA graduate, as to whether or not the store should be discontinued. The special equipment used in each store has no resale value. If store A is closed, all employees will be discharged.

For discussion:

1. What is the financial advantage (disadvantage) of discontinuing Store A? The company has no alternative use for the restaurant facility.

2. How might the statements be restructured to provide a more informative management report for analysis purposes.

	Total	Store A	Store B	Store C
Sales	$       1,000,000	$      140,000	$      500,000	$      360,000
Variable expenses	410,000	60,000	200,000	150,000
Contribution margin	590,000	80,000	300,000	210,000
Fixed expenses:
Employee wages and benefits	216,000	41,000	110,000	65,000
Depreciation of special equipment	95,000	20,000	40,000	35,000
Advertising	19,000	6,000	7,000	6,000
General corporation overhead (*)	200,000	28,000	100,000	72,000
Total fixed expenses	530,000	95,000	257,000	178,000
Net operating income (loss)	$            60,000	$      (15,000)	$         43,000	$         32,000
(*) A common fixed cost that is allocated on the basis of sales dollars

Answer 1