b.The lease on the building housing the North Store can be broken with no penalty.

c.The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

d.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 $12,800 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,800 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 persons salary is $5,600 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.

f.The company pays employment taxes equal to 15% of their employees' salaries.

g.One-third of the insurance in the North Store is on the stores fixtures.

h.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 $6,900 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., 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, Inc Income Statement For the Ouarter Ended September 30 North Store Store Store ales Cost of goods sold Gross margin Selling and administrative expenses: $4,600,e00 92e,600 $1,840,ee0 $1,840,00e 1,012,8ee 828,800 2,53e,0ee 953,600 565,600 2,07e,800 355,000 Selling expenses Administrative expenses 278,600 166,190 444,780 $ 758,80e $(14,400) $389,100 $ 383,30e 849,800 247,483 463,800 122,98e 369,480 323,900 174,900 497,900 Total expenses Net operating income (loss) 1,312,0ee 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 usee a. The breakdown of the selling and administrative expenses that are shown above is as follows North Store South Store To Store Selling expenses Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery $230,4e0 62,200 $ 68,600 99,600 26,800 27,660 85,900 118,00 102,808 10,200 8,690 181,608 67,90e 13,800 88,000 27,600 305,800 6, 200 8,600 4,600 4,60e equipment Total selling expenses $849,000 $247,400 323,000 $278,60e "Allocated on the basis of sales dollars South Store East Store Store Administrative expenses: Store managers' salaries General office salaries Insurance on fixtures and inventory Utilities Employment taxes General office-other* 94,000 $ 29,000 $ 38,088 $. 27,880 27,680 11,780 29,380 24,428 46,800 $463,00 $122,eee $174, 9ee $166,100 69,000 41,900 81,120 62,880 115,900 27,680 17,980 24,880 21,420 46,900 13,88e 12,30e 26,860 066 23,80e Total administrative expenses