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 $ 3,900,000 $ 820,000 $ 1,560,000 $ 1,520,000 Cost of goods sold 2,145,000 480,000 829,000 836,000 Gross margin 1,755,000 340,000 731,000 684,000 Selling and administrative expenses Selling expenses 835,000 240,400 319,500 275,100 Administrative expenses 428,000 115,000 164,400 148,600 Total expenses 1,263,000 355,400 483,900 423,700 Net operating income (loss) $ 492,000 $ (15,400 ) $ 247,100 $ 260,300 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 $ 241,600 $ 56,800 $ 85,400 $ 99,400 Direct advertising 174,000 60,000 81,000 33,000 General advertising 58,500 12,300 23,400 22,800 Store rent 305,000 94,000 111,000 100,000 Depreciation of store fixtures 20,500 5,500 6,900 8,100 Delivery salaries 23,700 7,900 7,900 7,900 Depreciation of delivery equipment 11,700 3,900 3,900 3,900 Total selling expenses $ 835,000 $ 240,400 $ 319,500 $ 275,100 Allocated on the basis of sales dollars Total North Store South Store East Store Administrative expenses Store managers' salaries $ 83,500 $ 25,500 $ 34,500 $ 23,500 General office salaries 58,500 12,400 23,400 22,700 Insurance on fixtures and inventory 34,000 10,200 13,500 10,300 Utilities 93,405 31,010 31,320 31,075 Employment taxes 61,095 15,390 22,680 23,025 General officeother 97,500 20,500 39,000 38,000 Total administrative expenses $ 428,000 $ 115,000 $ 164,400 $ 148,600 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 $11,400 per quarter The general manager of the North Store would continue to earn her normal salary of $12,400 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 $4,900 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 $6,200 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 please show your work

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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	$	3,900,000	$	820,000		$	1,560,000	$	1,520,000
Cost of goods sold		2,145,000		480,000			829,000		836,000
Gross margin		1,755,000		340,000			731,000		684,000
Selling and administrative expenses:
Selling expenses		835,000		240,400			319,500		275,100
Administrative expenses		428,000		115,000			164,400		148,600
Total expenses		1,263,000		355,400			483,900		423,700
Net operating income (loss)	$	492,000	$	(15,400	)	$	247,100	$	260,300

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	$	241,600	$	56,800	$	85,400	$	99,400
Direct advertising		174,000		60,000		81,000		33,000
General advertising*		58,500		12,300		23,400		22,800
Store rent		305,000		94,000		111,000		100,000
Depreciation of store fixtures		20,500		5,500		6,900		8,100
Delivery salaries		23,700		7,900		7,900		7,900
Depreciation of delivery equipment		11,700		3,900		3,900		3,900
Total selling expenses	$	835,000	$	240,400	$	319,500	$	275,100

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store managers' salaries	$	83,500	$	25,500	$	34,500	$	23,500
General office salaries*		58,500		12,400		23,400		22,700
Insurance on fixtures and inventory		34,000		10,200		13,500		10,300
Utilities		93,405		31,010		31,320		31,075
Employment taxes		61,095		15,390		22,680		23,025
General officeother*		97,500		20,500		39,000		38,000
Total administrative expenses	$	428,000	$	115,000	$	164,400	$	148,600

*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 $11,400 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,400 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 $4,900 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 $6,200 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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