*Allocated on the basis of sales dollars.

2. The lease on the building housing the North Store can be broken with no penalty.
3. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.
4. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $13,800 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,800 per quarter. All other managers and employees in the North store would be discharged.
5. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This persons salary is $5,900 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.
6. The company pays employment taxes equal to 15% of their employees' salaries.
7. One-third of the insurance in the North Store is on the stores fixtures.
8. The General office salaries and General officeother relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This persons compensation is $7,400 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 that the North Store's floor space cant be subleased, would you recommend closing the North Store?

5. Assume that the North Store's floor space cant be subleased. However, let's introduce three more assumptions. First, assume that 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, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that 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?

Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North South East Total Store Store Store $4,900,000 2,695,000 2,205,000 $980,000 620,000 360,000 $1,960,000 997,000 963,000 $1,960,000 1,078,000 882,000 Sales 6 Cost of goods sold Gross margin Selling and administrative expenses Selling expenses Administrative expenses points 280,100 173,600 453,700 $ 428,300 855,000 478,000 1,333,000 872,000 250,400 125,000 375,400 324,500 179,400 503,900 Total expenses ook $(15,400) Net operating income (loss) 459,100 Print The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use: References a. The breakdown of the selling and admin istrative expenses that are shown above is as follows: North South East Total Store Store Store Selling expenses: Sales salaries $ 75,400 91,000 29,400 107,000 7,900 8,900 $252,600 184,000 73,500 278,000 25,500 26,700 $65,400 70,000 14,700 80,000 6,500 8,900 $111,800 23,000 29,400 91,000 11,100 8,900 Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses 4,900 14,700 4,900 4,900 $855,000 $250,400 $324,500 $280,100 Allocated on the basis of sales dollars North South East Total Store Store Store Administrative expensess: Store managers' salaries General office salaries Insurance on fixtures and inventory Utilities $ 39,500 29,400 $98,500 73,500 44,000 71,805 67,695 122,500 $30,500 28,500 29,300 12,300 27,725 26,775 49,000 14,800 13,200 24,060 17,940 24,500 18,500 20,020 22,980 49,000 Employment taxes General office-other* Total administrative expenses $478,000 $125,000 $179,400 $173,600 *Allocated on the basis of sales dollars. 3