10 9 points Superior Markets, Incorporated, operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below. Superior Markets, Incorporated Income Statement For the Quarter Ended September 38 Total North Store $3,360,000 eBook Print References Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses: Total expenses South Store) $ 806,400 $ 1,344,000 East Store $ 1,209,600 1,856,064 451,584 739,200 665,280 1,503,936 354,816 604,800 544,320 915,040 259,168 352,800 303,072 428,968 118,720 169,008 141,232 1,344,000 377,888 521,808 444,304 $82,992 $ 100,016 Net operating income (loss)) $ 159,936 $ (23,072) The North Store has consistently shown losses over the past two years, so management is considering closing this store. a. A detailed breakdown of the selling and administrative expenses shown above is as follows: Selling expenses: Direct advertising Sales salaries General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses "Allocated on the basis of sales dollars Total $267,680 209,448 50,400 North Store South Store East Store $ 78,400 $ 99,688 $ 89,600 57,128 80,640 71,680 12,096 20,160 18,144) 336,000 95,200 134,400 106,400 17,920 5,152 6,720 6,048 23,520 7,840 7,840 7,840 10,000 3,360 3,360 3,360 $915,040 $ 259,168 5 352,800 $ 303,072 9 Total North Store South Store East Store Administrative expenses: Store managers salaries $78,400 General office salaries 56,000 $ 23,520 13,440 $ 33,600 $ 21,280 22,400 20,160 Insurance on fixtures and inventory 28,000 8,400 10,000 9,520 10 points Utilities 118,720 34,720 44,800 39,200 Employment taxes 63,840 18,480. 24,528 20,832 General office-others 84,000 Total administrative expenses $428,968 20,160 $118,720 33,600 30,240 $ 169,008 $141,232 "Allocated on the basis of sales dollars Book b. The North Store's rental agreement can be broken with no penalty. Pr c. The North Store's fixtures would be transferred to the other two stores if it were closed d. The North Store's general manager would be transferred to another position in the company if it were closed. She would fill a position that otherwise would have required hiring a new employee at a salary of $12.320 per quarter. The general manager of the North Store would continue to earn her normal salary of $13.440 per quarter. All other managers and employees in the North Store would be discharged e. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person's salary is $4,480 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use. f. The company pays employment taxes equal to 15% of their employees' salaries. g. One-third of the North Store's insurance relates to its fixtures. h. The "General office salaries" and "General office-other relate to the overall management of Superior Markets, Incorporated. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's compensation is $6.720 per quarter. Required: 1. How much employee salaries will the company avoid if it closes the North Store? 2. How much employment taxes will the company avoid if it closes the North Store? 3. What is the financial advantage (disadvantage) of closing the North Store? 4. Assuming the North Store's floor space can't be subleased, would you recommend closing the North Store? 5. Assume the North Store's floor space can't be subleased. However, let's introduce three more assumptions. First, if the North Store were closed, one-fourth of its sales would transfer to the East Store due to strong customer loyalty to Superior Markets. Second, the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East Store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?