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 $ 964,800 4,020,000 1,608,000 1,447,200 Cost of goods sold 2,220,648 540,288 884,400 795,960 Gross margin 1,799,352 424,512 723,600 651,240 Selling and administrative expenses: Selling expenses 1,094,780 310,076 422,100 362,604 Administrative expenses 513,220 142,040 202,206 168,974 Total expenses 1,608,000 452,116 624,306 531,578 $ Net operating income (loss) $191,352 $ 99,294 $ 119,662 (27,604) 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 $ 320,260 $ 93,800 119,260 107,200 Direct advertising 250,580 68,340 96,480 85,760 General advertising* 60,300 14,472 24,120 21,708 Store rent 402,000 113,900 160,800 127,300 Depreciation of store fixtures 21,440 6,164 8,040 7,236 Delivery salaries 28,140 9,380 9,380 9,380 Depreciation of delivery 12,060 4,020 4,020 equipment 4,020 $ $ $ $ Total selling expenses 1,094,780 310,076 422,100 362,604 *Allocated on the basis of sales dollars. Total North South East Store Store Store Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* $ 93,800 $ 28,140 $ 40,200 $25,460 67,000 16,080 26,800 24,120 33,500 10,050 12,060 11,390 142,040 41,540 53,600 46,900 76,380 22,110 29,346 24,924 100,500 24,120 40,200 36,180 $ $ $ $ Total administrative expenses 513,220 142,040 202,206 168,974 *Allocated on the basis of sales dollars. 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 $14,740 per quarter. The general manager of the North Store would continue to earn her normal salary of $16,080 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 $5,360 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 $8,040 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 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 3 Required 4 Required 5 What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative vali Financial advantage (disadvantage) < Required 2 Required 4 > 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? The North Store should be closed. The North Store should not be closed. 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