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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 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.

Financial Reporting, Financial Statement Analysis and Valuation
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter10: Forecasting Financial Statement
Section: Chapter Questions
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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
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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