Problem 11-26 Close or Retain a Store [LO11-2] 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: South Store $1,350,000 235,00 625, Bee Store $1,300.00 Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North Total Store Sales $3,Lee.ee 5740, ese Cost of goods sold 1.870, 420, eee Gross sargin 1.530.00 320, eee Selling and administrative expenses: Selline expenses 825.000 235.ee Administrative expenses 3.000 110, Total expenses 1.728.00 Net operating income (los) $ 2,000 $ (25,400) 272.600 317.000 156,900 473.900 151,100 175,300 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: a. The breakdown of the selling and administrative expenses that are shown above is as follows: a. The breakdown of the selling and administrative expenses that are shown above is as follows: North Store South Store East Store Total Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses $ 220, 680 183, eee $1,800 320, eee 18, eee 22, 2ee $ 64,500 55, eee 11, 180 89,00 5, eee 7,400 $ 79, 4ee 76,000 2e,480 124, 6,488 7,400 $ 76,700 52, eee 19,500 107, eee 6,6ee 7,400 1e, 2ee $ 825,eee 3,40e $ 235,400 3,480 $ 317,000 3,400 $272,689 "Allocated on the basis of sales dollars. North Stare South Store East Store Administrative expenses: Store managers salaries General office salaries Insurance on fixtures and inventory Utilities Employment taxes General office-other Total administrative expenses $ 76, eee 51.000 20.000 106,530 SS $ 23,00 11, 200 8,700 32,685 15,915 18. Su 11e, ea $ 32,000 20, 4ea 11, see 38.628 28,888 34,00 $ 156,988 $ 21,000 19,480 9,388 35,225 18.625 32.500 5.08 $ 43,00 "Allocated on the basis of sales dollars. b. The lease on the building housing the North Store can be broken with no penalty c. The foxtures 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 $10.200 per quarter. The general manager of the North Store would continue to earn her normal salary of $11.200 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 $4.400 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 The company pays employment taxes equal to 15% of their employees' salaries 9. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries and General office-other 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 person's compensation is $5,600 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 it closes the North Score? 3. What is the financial advantage (disadvantages of closing the North Store? 4. Assuming that the North Store's floor space can't be subieased, would you recommend closing the North Store? 5. Assume that the North Store's floor space can't 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 soles 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 os presentes in the East store given these new assumptions, what is the financial advantage (disadvantage of closing the North Store