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 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) North Store $ 3,900,000 $ 936,000 2,154,360 524,168 South Store $ 1,560,000 858,000 East Store $ 1,404,000 772,200 1,745,648 411,840 1,062,100 497,900 1,560,000 300,820 782,000 409,500 631,800 351,780 137,500 196,170 163,938 438,620 605,670 515,718 $ 185,640 $ (26,780) $ 96,330 $ 116,090 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: 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. Administrative expenses: Store managers salaries General office salaries Insurance on fixtures and inventory Utilities Employment taxes General office-other Total administrative expenses "Allocated on the basis of sales dollars. Total $310,700 243,100 North Store South Store East Store $91,000 $ 115,700 $ 104,000 66,300 93,600 83,200 58,500 14,040 23,400 21,060 390,000 110,500 156,000 123,500 20,000 5,980 7,800 7,020 27,300 9,100 9,100 9,100 11,700 3,900 3,900 3,900 $ 1,062,100 $ 380,820 $409,500 $351,780 Total North Store South Store East Store $91,000 $27,300 $ 39,000 $ 24,700 65,000 15,600 26,000 23,400 32,500 9,750 11,700 11,050 137,800 40,300 52,000 45,500 74,100 21,450 28,470 24,180 97,500 23,400 39,000 35,100 $ 497,900 $137,800 $196,170 $163,930 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 $14,300 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,600 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 $5,200 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 office-other 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 $7,800 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? 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 > 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 Required 1 Required 2 Required 31 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) 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.) Financial advantage (disadvantage) Show less A