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 $3,800,000 $760,000 $1,520,000 Cost of goods sold 2,090,000 420,000 834,000 Gross margin 1,710,000 340,000 686,000 Selling and administrative expenses: Selling expenses 833,000 239, 400 319,000 Administrative expenses 423,000 114,000 162,900 Total expenses 1,256,000 353, 400 481,900 Net operating income (loss) $ 454,000 $(13,400) $ 204,100 East Store $1,520,000 836,000 684,000 2 74,600 146,100 420,700 263,300 $ 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: North Store Total South Store East Store Selling expenses : Sales salaries Direct advertising $248,200 $ 59,000 $ 87,800 $101,400 173,000 59,000 80,000 34,000 7 Ann 11 Annonnon 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 $ 248,200 173,000 57,000 300,000 20,000 23, 400 $ 59,000 59,000 11,400 93,000 5,400 7,800 $ 87,800 80,000 22,800 110,000 6,800 7,800 $101,400 34,000 22,800 97,000 7,800 7,800 11,400 $833,000 3,800 $239,400 3,800 $319,000 3,800 $274,600 *Allocated on the basis of sales dollars. North Store South Store East Store Total Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other Total administrative expenses $ 82,000 57,000 33,000 94,410 61,590 95,000 $423,000 $ 25,000 11,400 9,900 33,220 15,480 19,000 $114,000 $ 34,000 22,800 13,000 32,240 22,860 38,000 $162,900 $ 23,000 22,800 10,100 28,950 23,250 38,000 $146,100 *Allocated on the basis of sales dollars. Check my work *Allocated on the basis of sales dollars. 1.25 points eBook 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 $10,400 per quarter. The general manager of the North Store would continue to earn her normal salary of $11,400 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 $4,800 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 $5,700 per quarter. References 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 yleld 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