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 $ 3,300,000 $ 792,000 1,822,920 443,520 1,477,080 348,480 South Store $ 1,320,000 726,000 594,000 East Store $ 1,188,000 653,400 534,600 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) 898,700 421,300 1,320,000 $ 157,080 254,540 116,600 371,140 $ (22,660) 346,500 165,990 512 490 $ 81,510 297,660 138,710 436,370 $ 98,230 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 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. $ 262,900 205,700 49,500 330,000 17,600 23.100 9,900 $ 898,700 $ 77,000 56,100 11,880 93,500 5,060 7,700 3,300 $ 254,540 $ 97,900 79,200 19,800 132,000 6,600 7,700 3,300 $ 346,500 $ 88,000 70,400 17,820 104,500 5,940 7,700 3,300 $ 297,660 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. $77,000 55,000 27,500 116,600 62,700 82,500 $ 421,300 $ 23,100 13,200 8,250 34,100 18,150 19,800 $ 116,600 $ 33,000 22,000 9,900 44,000 24,090 33,000 $ 165,990 $ 20,900 19,800 9,350 38,500 20,460 29,700 $ 138,710 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 $12,100 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,200 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 $4,400 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 $6,600 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? 1, 2:31 PM Assignment Print View 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