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 Total North Store South Store East Store Sales $ 3,500,000 $ 780,000 $ 1,400,000 $ 1,320,000 Cost of goods sold 1,925,000 450,000 749,000 726,000 Gross margin 1,575,000 330,000 651,000 594,000 Selling and administrative expenses Selling expenses 827,000 236,400 317,500 273,100 Administrative expenses 408,000 111,000 158,400 138,600 Total expenses 1,235,000 347,400 475,900 411,700 Net operating income (loss) $ 340,000 $ (17,400 ) $ 175,100 $ 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 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 $ 228,000 $ 62,600 $ 77,000 $ 88,400 Direct advertising 170,000 56,000 77,000 37,000 General advertising 52,500 11,700 21,000 19,800 Store rent 325,000 90,000 125,000 110,000 Depreciation of store fixtures 18,500 5,100 6,500 6,900 Delivery salaries 22,500 7,500 7,500 7,500 Depreciation of delivery equipment 10,500 3,500 3,500 3,500 Total selling expenses $ 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 $ 77,500 $ 23,500 $ 32,500 $ 21,500 General office salaries 52,500 11,800 21,000 19,700 Insurance on fixtures and inventory 30,000 9,000 11,500 9,500 Utilities 103,425 31,390 37,700 34,335 Employment taxes 57,075 15,810 20,700 20,565 General officeother 87,500 19,500 35,000 33,000 Total administrative expenses $ 408,000 $ 111,000 $ 158,400 $ 138,600 Allocated on the basis of sales dollars The lease on the building housing the North Store can be broken with no penalty The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed 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 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 $4,500 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 The company pays employment taxes equal to 15 of their employees' salaries One third of the insurance in the North Store is on the stores fixtures The General office salaries and General officeother 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 persons compensation is $5,900 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 cant be subleased, would you recommend closing the North Store 5 Assume that the North Store's floor space cant 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

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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

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
	Total		North Store			South Store		East Store
Sales	$	3,500,000	$	780,000		$	1,400,000	$	1,320,000
Cost of goods sold		1,925,000		450,000			749,000		726,000
Gross margin		1,575,000		330,000			651,000		594,000
Selling and administrative expenses:
Selling expenses		827,000		236,400			317,500		273,100
Administrative expenses		408,000		111,000			158,400		138,600
Total expenses		1,235,000		347,400			475,900		411,700
Net operating income (loss)	$	340,000	$	(17,400	)	$	175,100	$	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:

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	$	228,000	$	62,600	$	77,000	$	88,400
Direct advertising		170,000		56,000		77,000		37,000
General advertising*		52,500		11,700		21,000		19,800
Store rent		325,000		90,000		125,000		110,000
Depreciation of store fixtures		18,500		5,100		6,500		6,900
Delivery salaries		22,500		7,500		7,500		7,500
Depreciation of delivery equipment		10,500		3,500		3,500		3,500
Total selling expenses	$	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	$	77,500	$	23,500	$	32,500	$	21,500
General office salaries*		52,500		11,800		21,000		19,700
Insurance on fixtures and inventory		30,000		9,000		11,500		9,500
Utilities		103,425		31,390		37,700		34,335
Employment taxes		57,075		15,810		20,700		20,565
General officeother*		87,500		19,500		35,000		33,000
Total administrative expenses	$	408,000	$	111,000	$	158,400	$	138,600

*Allocated on the basis of sales dollars.

The lease on the building housing the North Store can be broken with no penalty.
The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.
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.
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 $4,500 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.
The company pays employment taxes equal to 15% of their employees' salaries.
One-third of the insurance in the North Store is on the stores fixtures.
The General office salaries and General officeother 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 persons compensation is $5,900 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 cant be subleased, would you recommend closing the North Store?

5. Assume that the North Store's floor space cant 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?