Sunday, May 3, 2020
Target Corporation free essay sample
Target Corporation is an outlet store for consumer goods which is the second largest behind wal- mart in the United States. The company was incorporated to do outlet business of consumer goods. The company has expanded all over US and it is becoming a household name in the United States. Target Corporation is contemplating of opening another outlet in West Virginia while closing the Michigan branch. The company is currently incurring annual costs of $ 5 million costs as management costs, rental expenses of $7.2 million for warehouse for all the branches in West Virginia. These costs will not change whether the company decided to the company decides to add the branch. the Michigan branch cost is as follows: Revenue                                           100,000,000 Cost of goods sold                             78 ,000,000 Salaries and wages                             6,000,000 Depreciation                                      2,000,000 Apportioned rent                               6,000,000 Apportioned management expense    8,000,000 Other costs                                        2,000,000 Profit (loss)                                        (2,000,000)  The company predicts that its revenue and cost of doing business under the additional branch will be as follows: The new branch is assumed to generate the following costs and revenues: Revenue                                            120,000,000 Cost of goods sold                             94,000,000 Salaries and wages               8,500,000 Depreciation                     4,000,000 Apportioned rent                  5,000,000 Apportioned management expense    7,200,000 Other costs                      1,000,000 Profit                           300,000. We will write a custom essay sample on Target Corporation or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page From the profit ad loss account prepared for the two branches above, it looks profitable to close the old branch and open the new branch. However, before shutting down the Michigan branch and opening the West Virginia additional branch a number of costs will be considered and these are relevant and irrelevant costs. in this case apportioned rent and management cost are irrelevant costs. These two costs will be incurred in West Virginia and Michigan with the existence or non- existence of the two branches. The analysis of the two costs will be as follows. Analysis excluding irrelevant costs.                                                           New branch at       Michigan branch.                                                           West Virginia. Revenue                                            120,000,000              100,000,000 Cost of goods sold                             94,000,000                78,000,000 Salaries and wages                             8,500,000                  6,000,000 Depreciation                                      4,000,000                  2,000,000 Apportioned rent                                   Apportioned management expense                    Other costs                     1,000,000                  2,000,000 Profit                                                 12,500,000                14,000,000 The Michigan branch although looks to be making loses should not be closed because it is making profits which are swallowed by irrelevant costs. the new branch should not be opened because after careful analysis of relevant cost I can conclude that it is not cost effective to operate it in the area. If the decision for the management is to shut one and operate one the best decision will be to maintain the Michigan branch and fail to operate or open the West Virginia branch. This is because the Michigan branch is more profitable as compared to the proposed West Virginia branch. NB: the figures in this case are imaginary and opening a new branch for the target company is hypothetical meant for this assignment.
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