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 $ 3,540,000 $ 849,600 $ 1,416,000 $ 1,274,400 Cost of goods sold 1,955,496 475,776 778,800 700,920 Gross margin 1,584,504 373,824 637,200 573,480 Selling and administrative expenses Selling expenses 964,060 273,052 371,700 319,308 Administrative expenses 451,940 125,080 178,062 148,798 Total expenses 1,416,000 398,132 549,762 468,106 Net operating income (loss) $ 168,504 $ (24,308 ) $ 87,438 $ 105,374 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 $ 282,020 $ 82,600 $ 105,020 $ 94,400 Direct advertising 220,660 60,180 84,960 75,520 General advertising 53,100 12,744 21,240 19,116 Store rent 354,000 100,300 141,600 112,100 Depreciation of store fixtures 18,880 5,428 7,080 6,372 Delivery salaries 24,780 8,260 8,260 8,260 Depreciation of delivery equipment 10,620 3,540 3,540 3,540 Total selling expenses $ 964,060 $ 273,052 $ 371,700 $ 319,308 Allocated on the basis of sales dollars Total North Store South Store East Store Administrative expenses Store managers' salaries $ 82,600 $ 24,780 $ 35,400 $ 22,420 General office salaries 59,000 14,160 23,600 21,240 Insurance on fixtures and inventory 29,500 8,850 10,620 10,030 Utilities 125,080 36,580 47,200 41,300 Employment taxes 67,260 19,470 25,842 21,948 General officeother 88,500 21,240 35,400 31,860 Total administrative expenses $ 451,940 $ 125,080 $ 178,062 $ 148,798 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 $12,980 per quarter The general manager of the North Store would continue to earn her normal salary of $14,160 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 $4,720 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 $7,080 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	$	3,540,000	$	849,600		$	1,416,000	$	1,274,400
Cost of goods sold		1,955,496		475,776			778,800		700,920
Gross margin		1,584,504		373,824			637,200		573,480
Selling and administrative expenses:
Selling expenses		964,060		273,052			371,700		319,308
Administrative expenses		451,940		125,080			178,062		148,798
Total expenses		1,416,000		398,132			549,762		468,106
Net operating income (loss)	$	168,504	$	(24,308	)	$	87,438	$	105,374

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	$	282,020	$	82,600	$	105,020	$	94,400
Direct advertising		220,660		60,180		84,960		75,520
General advertising*		53,100		12,744		21,240		19,116
Store rent		354,000		100,300		141,600		112,100
Depreciation of store fixtures		18,880		5,428		7,080		6,372
Delivery salaries		24,780		8,260		8,260		8,260
Depreciation of delivery equipment		10,620		3,540		3,540		3,540
Total selling expenses	$	964,060	$	273,052	$	371,700	$	319,308

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store managers' salaries	$	82,600	$	24,780	$	35,400	$	22,420
General office salaries*		59,000		14,160		23,600		21,240
Insurance on fixtures and inventory		29,500		8,850		10,620		10,030
Utilities		125,080		36,580		47,200		41,300
Employment taxes		67,260		19,470		25,842		21,948
General officeother*		88,500		21,240		35,400		31,860
Total administrative expenses	$	451,940	$	125,080	$	178,062	$	148,798

*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 $12,980 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,160 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 $4,720 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 $7,080 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?