Problem 12-26 Close or Retain a Store [L012-2 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 Narkets, Inc. Income Statement For the Quarter Ended September 30 East Store North South Store Total store Sales Cost of goods sold Gross margin Selling and administrative expenses 4,800,000 $960,000 $1,920,000 $1,920,000 2,640,000 600,000 984,000 1,056,000 936,000 2,160,000 360.000 53,000 249,400 1326,000 373,400 864,000 Selling expenses 324,000 279, 600 Administrative expenses Total expenses 473,000 124,000 177,900 171,100 4501,900 4 450,700 Net operating income (oss) 834,000 $(13,400) 434,100 413,300 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: Che 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 $246,200 59,000 77,800 $109,400 183,000 69,000 90,000 24,000 72,000 14,400 28,800 28,800 286,000 87,000 106,000 93,000 7,800 10,800 8,800 25,000 26,400 6,400 8,800 8,800 4,800 4,800 $853,000 $249,400 $324,000 $279,600 14,400 4,800 equipment Total selling expenses Allocated on the basis of sales dollars North Store South Store East Store Tota Administrative expenses Store managers salaries General office salaries. Insurance on fixtures and s 97,000 30,000 39,000 28,000 72,000 14,400 28, 80028,800 43,00012,900 18,000 12,100 inventory Utilities Employment taxes General office-other* 74,76025,870 20,94027,950 66,240 16,830 23,160 26,250 48,000 $473,000 $124,000 $177,900 $171,100 120,000 Total administrative expenses 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 fixtures being used in the North St d. The general manager of the North Store would be retained and transferred to another position in the company if ore would be transferred to the other two stores if the North Store were closed the North Store were closed. She would be filling a position that would otherwise be managers and employees in the North store would be discharged. closed. This person's salary is $5,800 per quarter. The delivery equipment would be distributed to the other stores. The filled by hiring a new employee at a salary of $13,400 per e general manager of the North Store would continue to earn her normal salary of $14,400 per quarter. All other livery crew that serves all three stores. One delivery person could be discharged if the North Store were 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 "Ge eneral 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 $7,200 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 present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store? equired: 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 N 5. Assume that the North Store's floor space can't be subleased. However, let's introduce three more ass that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales closing the North Store. Third, assume that the increased sales in the East Store would yield the same gro of sales as present sales in the East store. Given these new assumptions, what is the financial advantage ( the North Store? Complete this question by entering your answers in the tabs below. RequiredRequired 2 Required 3 Required 4 Required S How much employee salaries will the company avoid if it cl oses the North Store? salaries Required 1 Required 2> equired: 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? 8. 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 Norths 5. Assume that the North Store's floor space can't be subleased. However, let's introduce three more assump that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong custo Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross m of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disac the North Store? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required How much employment taxes will the company avoid if it closes the North Store? nt taxes 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 Sto 5. Assume that the North Store's floor spac e can't be subleased. However, let's introduce three more assumption that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that w tore. Third, assume that the increased sales in the East Store would yield the same gross marg present sales in the East store. Given these new assumptions, what is the financial advantage (disadve of sales as the North Store? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Requkd 3Required 4 Required S What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative valu Required 2 Required 4 > 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 No 5. Assume that the North Store's floor space can't be subleased. However, let's introduce three more ass that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales closing the North Store. Third, assume that the increased sales in the East Store would yield the same gro of sales as present sales in the East store. Given these new assumptions, what is the financial advantage the North Store? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required Required Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? The North Store should be closed. OThe North Store should not be closed. Required 3 Required 5> Check r s. Assume that the North Store's tloor space can't be subleasea. However, let's introauce three more assumptions. Hirst, as that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty t Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise f closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a pe of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of the North Store? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 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?(Enter any "disadvantages" as a negative value.) Show leSS Financial advantage (disad