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 Total North Store South Store East Store Sales $ 3,660,000 $ 878,400 51,464,000 $ 1.317,60 Cost of goods sold 2.021264 491,200 SOS, 200 724,680 Gross margin 1,633,216 386,496 658,300 592, 930 Selling and administrative expenses: Selling expenses 996,740 282.300 354,300 330,132 Administrative expenses 467260 329,320 154,00 15). Total expenses 1,464,000 411,628 563396 433,974 Net operating Income (loss) 5 174,210 $ (25,132) $ 90,402 $ 105,940 The North Store has consistently shown fosses over the past two years. For this reason, management is giving consideration to dosing 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: 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. $ 291,580 228,140 54,900 366,000 19,520 25,620 10,980 $ 996,740 $ 85,400 62,220 13,176 103,709 5,612 8,540 3,660 $ 282,308 $ 108,588 87,840 21,960 146,400 7,320 8,540 3,660 $ 384,300 $ 97,600 78,888 19,764 115,989 6,588 8,540 3,660 $ 330, 132 Total North Store South Store East Store 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. $ 85,400 61,000 30,500 129,320 69,540 91,500 $ 467,260 $ 25,620 14,640 9,150 37,820 20,130 21,960 $ 129,320 $ 36,600 24,400 10,980 48,800 26,718 36,600 $ 184,898 $ 23,180 21,960 10,370 42,700 22,692 32.940 $ 153,842 b. 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. 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 $13.420 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,640 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 $4.880 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 $7.320 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