Problem 13-26 (Algo) Close or Retaln a Store (LO13-2] Superor Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption cosung Income statement for the company for the last quarter is given below Superiorkets, Inc. Incontatement For the Quartaided September 30 North South Store Store Sales $4,200,000 $848,800 $1,680,000 Cost of goods sold 2,310,000 see, eee 886,000 Gross margin 1,890,000 340,000 794,000 Selling and administrative expenses Selling expenses 841,000 243,400 321,00 Administrative expenses 443,000 118,000 168,900 Total expenses 1,284,000 361.480 489,900 Net Operating Income (loss) $ 606,000 $(21,400) S 304,100 East Store $1,680,000 924,000 756, eee 276,600 156, 100 432,700 5 323,000 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 additonal Information is available for your use: a. The breakdown of the selling and administrative expenses that are shown above is as follows: North Total South store East Store Selling expenses Sales salaries Direct advertising General advertising Store runt Depreciation of store textures Delivery Salaries Depreciation dulu ent Total singen $256,00 172 be 67.000 285,099 22,000 24, Gee 12.000 $ 68.cee . 12.00 81.000 5.86 8.200 5781200 54,00 25,200 114.000 2.26 8.200 4.200 $11,000 30.co 29,200 90.000 9,000 2.200 4,206 $270,oo 1841.000 $245,400 521.000 -Allocated on the basis of soles dollars North Total South -Store rast Store General advertising Store rent Depreciation of store fixture Delivery salaries Depreciation of delivery equipment Total selling expenses 63,000 12,60 285,000 81,000 22,000 5,80 24,600 B,200 12,600 4,209 $841,000 $243,400 25, 200 25,200 114,000 90,000 7,200 9,000 3,200 8,200 4,200 4,200 $121,000 $276,600 "Allocated on the basis of sales dollars. Total North Store Administrative expenses: Store managers' salaries General office salaries Insurance on fixtures and inventory Utilities Employment taxes General office other Total administrative expenses 33.000 63,000 37,000 85,140 64,860 105,000 $443,000 $ 27.000 12,600 11,100 28,840 17,460 21, cee $110,000 South East Store Store $ 16,00 $ 25.000 25,200 25,200 15.000 10.900 28,560 27,740 22,140 25,260 42,000 42.000 $169,900 $156, 100 "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 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 of the North Store were closed. She would be filing a position that would otherwise be filled by hiring a new employee at a salary of $11.600 per quarter. The general manager of the North Store would continue to earn her normal salary of $12.600 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 $5.200 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 t. 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 $6.300 per quarter. . Required: 1. How much omoloyee 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 Stannaren't A CARLA - Required: 1. How much employee salaries will the company avold if it closes the North Store? 2. How much employment taxes will the company avold 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? Complete this question by entering your answers in the tabs below. Required: Required Required 3 Required Required How much employee salaries will the company avoid if it closes the North Store? Emaloyee salaries Reguired 2 >