Superior Markets, Incorporated, 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, Incorporated Income Statement For the Quarter Ended September 30 Total North Store Sales $ 3,600,000 $ 864,000 Cost of goods sold 1,988,640 483,840 Gross margin 1,611,360 380,160 Selling and administrative expenses: Selling expenses 980,400 277,680 Administrative expenses 459,600 127, 200 Total expenses 1,440,000 404,880 Net operating income (loss) $ 171,360 $ (24,720) South Store $ 1,440,000 792,000 648,000 East Store $ 1,296,000 712,800 583,200 378,000 181,080 559,080 $ 88,920 324, 720 151,320 476,040 $ 107,160 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: Total North Store South Store East Store Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery calories $ 286, 800 224,400 54,000 360,000 19, 200 25 200 $ 84,000 61,200 12,960 102,000 5, 520 inn $ 106,800 86,400 21,600 144,000 7,200 A 400 $ 96,000 76,800 19,440 114,000 6,480 Ann a. 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 Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses *Allocated on the basis of sales dollars. $ 286,800 224,400 54,000 360,000 19, 200 25, 200 10, 800 $ 980,400 $ 84,000 61,200 12,960 102,000 5,520 8,400 3,600 $ 277, 680 $ 106,800 86,400 21,600 144,000 7,200 8,400 3,600 $ 378,000 $ 96,000 76, 800 19,440 114,000 6,480 8,400 3,600 $ 324, 720 es Total North Store South Store East Store Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and nventory Utilities Employment taxes General office-other* Total administrative expenses *Allocated on the basis of sales dollars. $ 84,000 60,000 30,000 127,200 68, 400 90,000 $ 459, 600 $ 25, 200 14,400 9,000 37,200 19,800 21,600 $ 127, 200 $ 36,000 24,000 800 48,000 26,280 36,000 $ 181,080 $ 22,800 21,600 200 42,000 22,320 32,400 $ 151,320 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 $13,200 per quarter. The general manager of the North Store would continue to earn her normal salary of $14.400 per quarter. All other 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 $13,200 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 person's salary is $4,800 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 store's fixtures. h. The "General office salaries and General officeother relate to the overall management of Superior Markets, Incorporated If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's compensation is $7,200 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 can't be subleased, would you recommend closing the North Store? 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