Problem 6-26 (Algo) Close or Retain a Store (L06-2] 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 $3,500,000 $780,000 $1,400,000 Cost of goods sold 1,925,000 450,000 749,000 Gross margin 1,575,000 330,000 651,000 Selling and administrative expenses: Selling expenses 827,000 236,400 317,500 Administrative expenses 408,000 111,000 158,400 Total expenses 1,235,000 347,400 475,900 Net operating income (loss) $ 340,000 $(17,400) $ 175,100 East Store $1,320,000 726,000 594,000 273,100 138,600 411,700 182,300 $ 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: Total North Store South Store East Store Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses $228,000 170,000 52,500 325,000 18,500 22,500 10,500 $ 62,600 56,000 11,700 90,000 5,100 7,500 3,500 $ 77,000 77,000 21,000 125,000 6,500 7,500 3,500 $ 88,400 37,000 19,800 110,000 6,900 7,500 3,500 $827,000 $236,400 $317,500 $273,100 *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 $ 77,500 52,500 30,000 103,425 57,075 87,500 $ 408,000 $ 23,500 11,800 9,000 31,390 15,810 19,500 $111,000 $ 32,500 21,000 11,500 37,700 20,700 35,000 $158, 400 $ 21,500 19,700 9,500 34,335 20,565 33,000 $138,600 *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 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 $10,800 per quarter. The general manager of the North Store would continue to earn her normal salary of $11,800 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 person's salary is $4,500 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 $5,900 per quarter. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 1 How much employee salaries will the company avoid if it closes the North Store? Employee salaries 96,200 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 14.430 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) $ (35,980) 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 A Financial advantage (disadvantage) Financial advantage 0