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 Sales Cost of gods sold Gross margin Selling expenses Administrative expenses Total expens Het operating income (loss) $3,000,00 $720,000 South Store $1,200,000 0,00) $74,100 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 int Total selling expenses 72,000 $10,000 64,000 21,000 9,000 7,000 5817,000 $315,000 "Allocated on the basis of sales dollars Total Administrative expenses Store managers salaries $70,000 $30,000 General office salaries 50,000 12,000 $ 19,000 Insurance on fixtures and inventory 31,000 57,000 14,500 General office-other 25,000 21,900 30,000 "Allocated on the basis of sales dollars. Administrative North Store South Store East Store $70,000 $25,000 $ 30,000 General office salaries 50,000 12,000 20,000 $19,000 18,000 Insurance on fixtures and inventory 25,000 7,500 Utilities 305,000 31,000 Explayeent taxes 57,000 16,500 General office-other 38,000 10,000 18,600 27,000 Total administrative "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 $11,000 per quarter. The general manager of the North Store would continue to ear her normal salary of $12,000 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. 6 One delivery person could be discharged if the North Store were closed. This person's salary is $4,000 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 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 $6,000 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?