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:

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:

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 $13,400 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,400 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 persons salary is $5,800 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 stores fixtures.

h.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 $7,200 per quarter.

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. 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?

Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North Store South Store East Store Total Sales Cost of goods sold Gross margin Selling and administrative expenses: $4,800,000 $960,000 $1,920,000 $1,920,000 1,056,000 864,000 2,640,000 2,160,000 600,000 360,000 984,000 936,000 Selling expenses Administrative expenses 279,600 171,100 450,700 $ 834,000 (13,400 434,100 413,300 853,000 249,400 124,000 373,400 324,000 177,900 501,900 473,000 1,326, 000 Total expenses Net operating income (loss) North Store South Store East Store ota Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery $246,200 $59,000 69,000 14,400 87,000 6,400 8,800 183,000 72,000 286,000 25,000 26,400 90,000 28,800 106,000 7,800 8,800 77,800 $109,400 24,000 28,800 93,000 10,800 8,800 equipment 14,400 4,800 4,800 4,800 otal selling expenses $853,000 $249,400 324,000 279,600 Allocated on the basis of sales dollars North Store South Store ota Store Administrative expenses Store managers' salaries General office salaries Insurance on fixtures and inventory Utilities Employment taxes General office-other $ 97,000 30,000 39,000 28,000 28,800 12,100 27,950 26,250 48,000 $473,000 $124,000 $177,900 $171,100 72,000 43,000 74,760 66,240 120,000 14,400 12,900 25,870 16,830 24,000 28,800 18,000 20,940 23,160 48,000 Total administrative expenses Allocated on the basis of sales dollars