Superior Markets, Incorporated, operates three stores in a large metropolitan area. A segmented absorption costing income statement or the compary for the last quarter is given below: The North Store has consistently shown losses over the past two years. For this reason, manegement 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 avoilable for your use: a. The breakdown of the seling and administrative expenses that are shown above is as follows b. The lease on the bullding housing the North Store can be broken with no penalty c. The fixtures being used in the North Store would be tronsferred to the other two stores if the North Store were ciosed 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 ernployee at a salary or $11,880 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,960 per quarter All othor 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 salory is $4,320 per quarter The delivory equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete. 1 The compary pays employment taxes equal to 15% of their employeges salaries 9 One-third of the insurance in the North Store is on the store's fixtures. in The "Generel office salaties" and "General office-other" relate to the overall manogement 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 workdoad. This person's compenchation is $6,480 per quorter Required: 1 How much employee salaries will the company avold if it closes the North Store? 2 How much employment taxes will the company ovoid if it closes the North Store? 3. What is the finaricial octvantage (disactvantage) 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, ossume that if the North Store wore closed, one-fourth of its sales would transfer to the East Store, due to strong custorner loyalty to Superior Markets, Second, ossume that the East Store has enough copacity to handle the increased sales that would arise from ciosing the North Store. Third, ossume that the increased soles in the East Store would yield the same grosis margin as a percentoge of soles as present soles in the East store Given these now assumptions, what is the financial odvantago (disadvontage) of closing the North 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 th 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 a present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store? Complete this question by entering your answers in the tabs below. How much employee sataries will the company avoid if it closes the North store? How much employment taxes will the company avoid if it closes the North store? What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantage Assuming that the North Store's floor space can't be subleased, would you recommend closing the Nor Assume that the North Store's floor space can't be subleased. However, let's introduce three more assumptions. First, ass that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty 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 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)
