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	South Store	East Store
Sales	$ 3,420,000	$ 820,800	$ 1,368,000	$ 1,231,200
Cost of goods sold	1,889,208	459,648	752,400	677,160
Gross margin	1,530,792	361,152	615,600	554,040
Selling and administrative expenses:
Selling expenses	931,380	263,796	359,100	308,484
Administrative expenses	436,620	120,840	172,026	143,754
Total expenses	1,368,000	384,636	531,126	452,238
Net operating income (loss)	$ 162,792	$ (23,484)	$ 84,474	$ 101,802

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	$ 272,460	$ 79,800	$ 101,460	$ 91,200
Direct advertising	213,180	58,140	82,080	72,960
General advertising*	51,300	12,312	20,520	18,468
Store rent	342,000	96,900	136,800	108,300
Depreciation of store fixtures	18,240	5,244	6,840	6,156
Delivery salaries	23,940	7,980	7,980	7,980
Depreciation of delivery equipment	10,260	3,420	3,420	3,420
Total selling expenses	$ 931,380	$ 263,796	$ 359,100	$ 308,484

*Allocated on the basis of sales dollars.

	Total	North Store	South Store	East Store
Administrative expenses:
Store managers' salaries	$ 79,800	$ 23,940	$ 34,200	$ 21,660
General office salaries*	57,000	13,680	22,800	20,520
Insurance on fixtures and inventory	28,500	8,550	10,260	9,690
Utilities	120,840	35,340	45,600	39,900
Employment taxes	64,980	18,810	24,966	21,204
General officeother*	85,500	20,520	34,200	30,780
Total administrative expenses	$ 436,620	$ 120,840	$ 172,026	$ 143,754

*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 $12,540 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,680 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 $4,560 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, Incorporated 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 $6,840 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?

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 >