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 $13,200 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,200 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 $5,700 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, Inc. 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 $7,100 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?

For the Quarter Ended September 30 North Store South Store East Total Store $4,700,000 $948,000 $1,880,00 $1,880,880 1,034,080 846,88e Cost of goods sold 2,585,000 580,800 368,808 971,000 989.080 marg 2,115,800 Selling and administrative expenses: Selling expenses Administrative expenses 323,580 176,480 499,98e $ 796,000 $(11,400) 409,100 851,808 248,488 468,000 123,00 371,408 168,680 447,700 398,300 Total expenses Net operating income (loss) 1,319,808 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: North Store South Store Total Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery $252,800 68,600 80,200 $112,680 25,080 28,280 90,000 10,580 182,880 70,580 281,000 24,580 26,180 89,800 28,200 86,000 105,000 68,800 14,100 6,300 14,100 Total selling expenses $851,080 $248,480 $323,50 $279,180 Allocated on the basis of sales dollars. North Store Tota Store Store Administrative expenses: $ 95,50e $29,500 $ 38,500 28,200 27,500 28,100 Store managers' salaries General office salaries Insurance on Tixtures and inventory Utilities Employment taxes General office-other 70,500 42,000 75,765 66,735 117,500 14,200 26,250 16,950 23,500 21,860 23,340 47,000 27,655 26,445 47,000 Total administrative expenses $468,000 $123,000 $176,400 $168,600 Allocated on the basis of sales dollars