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 $4,020,000 2,220,648 1,799,352 North Store $964,000 548,288 South Store $1,600,000 884,400 East Store $1,447,200 795,960 424,512 721,600 651,240 1,094,780 110,076 422.100 362,604 513/220 1,600,000 $191,352 142,040 202,206 108,974 452,316 634,300 533-674 $ (27,604) $99,294 $119.662 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 Sales salaries Direct advertising General advertising Store reit 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 taxe General office-other Total administrative expenses "Allocated on the basis of sales dollars. Total North Store South Store Tist Store $320,260 250,580 60,000 5 93,800 $119,200 $307 200 68,340 ,480 14,472 24,320 402,000 111,900 160.800 21,440 8.040 28,140 9,380 12,060 4,420 $1,094,780 $10,0 1422,1 826 $302,4 Total North Store Sath Stor (Gst Store] $93,000 67,000 $20,340 26,000 $40,200 $25,400 28.800 24,120 33,500 10.050 12,0 142,040 76,380 41,540 22,210 53.600 29.346 24,924 100,500 $ 513,220 5 342,64 $22 $8.974 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 filling a position that would otherwise be filled by hiring a new employee at a salary of $14,740 per quarter. The general manager of the North Store would continue to earn her normal salary of $16,080 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 $5,360 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 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, 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 $8,040 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 Supertor 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?