Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) Superior Markets, Incorporated Income Statement For the Quarter Ended September 30 Total $ 3,960,000 North Store $ 950,400 South Store $ 1,584,000 871,200 East Store $ 1,425,600 2,187,504 1,772,496 1,078,440 505,560 1,584,000 532,224 784,080 418,176 712,800 641,520 305,448 415,800 357,192 139,920 199,188 166,452 445,368 614,988 523,644 $ 188,496 $ (27,192) $ 97,812 $ 117,876 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: Selling expenses: Total North Store South Store East Store $ 315,480 246,840 59,400 $ 92,400 $ 117,480 67,320 95,040 $ 105,600 84,480 14,256 23,760 21,384 396,000 112,200 158,400 125,400 21,120 6,072 7,920 7,128 27,720 9,240 9,240 9,240 11,880 3,960 3,960 3,960 $ 305,448 $ 415,800 $ 357,192 Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses *Allocated on the basis of sales dollars. Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses $ 1,078,440 *Allocated on the basis of sales dollars. Total North Store South Store East Store $ 92,400 66,000 33,000 $27,720 15,840 9,900 $ 39,600 $ 25,080 23,760 26,400 11,880 11,220 139,920 40,920 52,800 46,200 75,240 21,780 28,908 24,552 99,000 23,760 39,600 35,640 $ 505,560 $ 139,920 $ 199,188 $ 166,452 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 $14,520 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,840 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 $5,280 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. n. The "General office salaries" and "General office-other" 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 person's compensation is $7,920 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