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:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

2. The lease on the building housing the North Store can be broken with no penalty.

3. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

4. 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 $12,800 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,800 per quarter. All other managers and employees in the North store would be discharged.

5. 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 $5,600 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.

6. The company pays employment taxes equal to 15% of their employees' salaries.

7. One-third of the insurance in the North Store is on the stores fixtures.

8. 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 $6,900 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. Income Statement For the Quarter Ended September 30 North South Total Store Store Sales $4,600,000 $920,000 $1,840,000 Cost of goods sold 2,530,000 565,000 953,000 Gross margin 2,070,000 355,000 887,000 Selling and administrative expenses: Selling expenses 849,000 247,400 323,000 Administrative expenses 463,000 122,000 174,900 Total expenses 1,312,000 369,400 4 97,900 Net operating income (loss) $ 758,000 $(14,400) $ 389,100 East Store $1,840,000 1,012,000 828,000 278,600 166,100 444,700 383,300 $ North Store South Store East Store Total Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses $ 230,400 181,000 69,000 305,000 24,000 25,800 $ 62,200 67,000 13,800 85,000 6,200 8,600 $ 68,600 88,000 27,600 118,000 7,600 8,600 $ 99,600 26,000 27,600 102,000 10,200 8,600 4,600 4,600 4,600 13,800 $849,000 $247,400 $323,000 $278,600 *Allocated on the basis of sales dollars. Total North Store South Store East Store $ 94,000 69,000 41,000 $ 29,000 13,800 12,300 $ 27,000 27,600 11,700 Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses 81,120 62,880 115,000 $463,000 26,860 17,040 23,000 $122,000 $ 38,000 27,600 17,000 24,880 21,420 46,000 $174,900 29,380 24,420 46,000 $166,100 *Allocated on the basis of sales dollars. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How much employee salaries will the company avoid if it closes the North Store? Employee salaries Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 ------ How much employment taxes will the company avoid if it closes the North Store? Employment taxes Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 .......... What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.) Financial advantage (disadvantage) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? IOThe North Store should be closed. IOThe North Store should not be closed. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 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 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? (Enter any "disadvantages" as a negative value.) Show less Financial advantage (disadvantage)