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: Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North South Total Store Store Sales $4,900,000 $980,000 $1,960,000 Cost of goods sold 2,695,000 620,000 997,000 Gross margin 2,205,000 360,000 963,000 Selling and administrative expenses : Selling expenses 855,000 250,400 324,500 Administrative expenses 478.000 125.000 179.400 Total expenses 1,333,000 375,400 503,900 Net operating income (loss) $ 872,000 $(15,400) $ 459,100 East Store $1,960,000 1,078,000 8 82,000 2 80, 100 173.600 4 53,700 428,300 $ 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: North Store 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 $252,600 184,000 73,500 278,000 25,500 26,700 $ 65,400 70,000 14,700 80,000 6,500 8,900 $ 75,400 91,000 29,400 107,000 7,900 8,900 $111,800 23,000 29,400 91,000 11,100 8,900 14,700 $855,000 4,900 $250, 400 4,900 $324,500 4,900 $280, 100 *Allocated on the basis of sales dollars. Total North Store 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 $ 98,500 73,500 44,000 71,805 67,695 122,500 $478,000 $ 30,500 14,700 13,200 24,175 17,925 24,500 $125,000 $ 39,500 29,400 18,500 20,020 22,980 49,000 $179,400 $ 28,500 29,400 12,300 27,610 26,790 49,000 $173,600 "Allocated on the basis of sales dollars. 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 $13,700 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,700 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 $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. 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 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 $7,350 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 can't be subleased, 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 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? Required 1 Required 2 Required 3 Required 4 Required 5 How much employee salaries will the company avold If it closes the North Store? Employee salarios Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How much employment taxes will the company avoid If it closes the North Store? Employment taxes Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What is the financial advantage (disadvantage) of closing the North Store? (Enter any disadvantages" as a negative value.) Financial advantage (disadvantage) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 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 sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would vield 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? (Enter any disadvantages as a negative value.) Show less Financial advantage (disadvantage)