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 $ 3,780,000 $ 907,200 $ 1,512,000 $ 1,360,800 Cost of goods sold 2,088,072 508,032 831,600 748,440 Gross margin 1,691,928 399,168 680,400 612,360 Selling and administrative expenses Selling expenses 1,029,420 291,564 396,900 340,956 Administrative expenses 482,580 133,560 190,134 158,886 Total expenses 1,512,000 425,124 587,034 499,842 Net operating income (loss) $ 179,928 $ (25,956) $ 93,366 $ 112,518 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 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 $ 301,140 $ 88,200 $ 112,140 $ 100,800 Direct advertising 235,620 64,260 90,720 80,640 General advertising 56,700 13,608 22,680 20,412 Store rent 378,000 107,100 151,200 119,700 Depreciation of store fixtures 20,160 5,796 7,560 6,804 Delivery salaries 26,460 8,820 8,820 8,820 Depreciation of delivery equipment 11,340 3,780 3,780 3,780 Total selling expenses $ 1,029,420 $ 291,564 $ 396,900 $ 340,956 Allocated on the basis of sales dollars Total North Store South Store East Store Administrative expenses Store managers' salaries $ 88,200 $ 26,460 $ 37,800 $ 23,940 General office salaries 63,000 15,120 25,200 22,680 Insurance on fixtures and inventory 31,500 9,450 11,340 10,710 Utilities 133,560 39,060 50,400 44,100 Employment taxes 71,820 20,790 27,594 23,436 General officeother 94,500 22,680 37,800 34,020 Total administrative expenses $ 482,580 $ 133,560 $ 190,134 $ 158,886 Allocated on the basis of sales dollars 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 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 $13,860 per quarter The general manager of the North Store would continue to earn her normal salary of $15,120 per quarter All other managers and employees in the North store would be discharged The company has one delivery crew that serves all three stores One delivery person could be discharged if the North Store were closed This persons salary is $5,040 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 One third of the insurance in the North Store is on the stores fixtures The General office salaries and General officeother 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 persons compensation is $7,560 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 cant be subleased, would you recommend closing the North Store 5 Assume that the North Store's floor space cant 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

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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

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:

	Total	North Store	South Store	East Store
Superior Markets, Incorporated Income Statement For the Quarter Ended September 30
Sales	$ 3,780,000	$ 907,200	$ 1,512,000	$ 1,360,800
Cost of goods sold	2,088,072	508,032	831,600	748,440
Gross margin	1,691,928	399,168	680,400	612,360
Selling and administrative expenses:
Selling expenses	1,029,420	291,564	396,900	340,956
Administrative expenses	482,580	133,560	190,134	158,886
Total expenses	1,512,000	425,124	587,034	499,842
Net operating income (loss)	$ 179,928	$ (25,956)	$ 93,366	$ 112,518

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:

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	$ 301,140	$ 88,200	$ 112,140	$ 100,800
Direct advertising	235,620	64,260	90,720	80,640
General advertising*	56,700	13,608	22,680	20,412
Store rent	378,000	107,100	151,200	119,700
Depreciation of store fixtures	20,160	5,796	7,560	6,804
Delivery salaries	26,460	8,820	8,820	8,820
Depreciation of delivery equipment	11,340	3,780	3,780	3,780
Total selling expenses	$ 1,029,420	$ 291,564	$ 396,900	$ 340,956

*Allocated on the basis of sales dollars.

	Total	North Store	South Store	East Store
Administrative expenses:
Store managers' salaries	$ 88,200	$ 26,460	$ 37,800	$ 23,940
General office salaries*	63,000	15,120	25,200	22,680
Insurance on fixtures and inventory	31,500	9,450	11,340	10,710
Utilities	133,560	39,060	50,400	44,100
Employment taxes	71,820	20,790	27,594	23,436
General officeother*	94,500	22,680	37,800	34,020
Total administrative expenses	$ 482,580	$ 133,560	$ 190,134	$ 158,886

*Allocated on the basis of sales dollars.

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.
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 $13,860 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,120 per quarter. All other managers and employees in the North store would be discharged.
The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This persons salary is $5,040 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.
One-third of the insurance in the North Store is on the stores fixtures.
The General office salaries and General officeother 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 persons compensation is $7,560 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 cant be subleased, would you recommend closing the North Store?

5. Assume that the North Store's floor space cant 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?