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Question # 3 Superior Markets, Incorporated, operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the

Question #3
Superior Markets, Incorporated, 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, Incorporated
Income Statement
For the Quarter Ended September 30
Total North Store South Store East Store
Sales $ 3,660,000 $ 878,400 $ 1,464,000 $ 1,317,600
Cost of goods sold 2,021,784491,904805,200724,680
Gross margin 1,638,216386,496658,800592,920
Selling and administrative expenses:
Selling expenses 996,740282,308384,300330,132
Administrative expenses 467,260129,320184,098153,842
Total expenses 1,464,000411,628568,398483,974
Net operating income (loss) $ 174,216 $ (25,132) $ 90,402 $ 108,946
The North Store has consistently shown losses over the past two years, so management is considering closing this store.
Detailed breakdown of the selling and administrative expenses shown above is as follows:
Total North Store South Store East Store
Selling expenses:
Sales salaries $ 291,580 $ 85,400 $ 108,580 $ 97,600
Direct advertising 228,14062,22087,84078,080
General advertising*54,90013,17621,96019,764
Store rent 366,000103,700146,400115,900
Depreciation of store fixtures 19,5205,6127,3206,588
Delivery salaries 25,6208,5408,5408,540
Depreciation of delivery equipment 10,9803,6603,6603,660
Total selling expenses $ 996,740 $ 282,308 $ 384,300 $ 330,132
*Allocated on the basis of sales dollars.
Total North Store South Store East Store
Administrative expenses:
Store managers' salaries $ 85,400 $ 25,620 $ 36,600 $ 23,180
General office salaries*61,00014,64024,40021,960
Insurance on fixtures and inventory 30,5009,15010,98010,370
Utilities 129,32037,82048,80042,700
Employment taxes 69,54020,13026,71822,692
General officeother*91,50021,96036,60032,940
Total administrative expenses $ 467,260 $ 129,320 $ 184,098 $ 153,842
*Allocated on the basis of sales dollars.
a. The North Stores rental agreement can be broken with no penalty.
b. The North Stores fixtures would be transferred to the other two stores if it were closed.
c. The North Stores general manager would be transferred to another position in the company if it were closed. She would fill a position that otherwise would have required hiring a new employee at a salary of $13,420 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,640 per quarter. All other managers and employees in the North Store would be discharged.
d. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This persons salary is $4,880 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use.
e. The company pays employment taxes equal to 15% of their employees' salaries.
f. One-third of the North Stores insurance relates to its fixtures.
g. The General office salaries and General officeother relate to the overall management of Superior Markets, Incorporated. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This persons compensation is $7,320 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?
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