Superior Markets, Inc., 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, Inc. Income Statement For the Quarter Ended September 30 Total North Store South Store East Store Sales $ 4,100,000 $ 860,000 $ 1,640,000 $ 1,600,000 Cost of goods sold 2,255,000 515,000 860,000 880,000 Gross margin 1,845,000 345,000 780,000 720,000 Selling and administrative expenses: Selling expenses 839,000 242,400 320,500 276,100 Administrative expenses 438,000 117,000 167,400 153,600 Total expenses 1,277,000 359,400 487,900 429,700 Net operating income (loss) $ 568,000 $ (14,400 ) $ 292,100 $ 290,300 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 $ 263,400 $ 69,600 $ 80,600 $ 113,200 Direct advertising 176,000 62,000 83,000 31,000 General advertising* 61,500 12,900 24,600 24,000 Store rent 280,000 80,000 113,000 87,000 Depreciation of store fixtures 21,500 5,700 7,100 8,700 Delivery salaries 24,300 8,100 8,100 8,100 Depreciation of delivery equipment 12,300 4,100 4,100 4,100 Total selling expenses $ 839,000 $ 242,400 $ 320,500 $ 276,100 *Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 86,500 $ 26,500 $ 35,500 $ 24,500 General office salaries* 61,500 13,000 24,600 23,900 Insurance on fixtures and inventory 36,000 10,800 14,500 10,700 Utilities 86,145 27,620 29,480 29,045 Employment taxes 65,355 17,580 22,320 25,455 General officeother* 102,500 21,500 41,000 40,000 Total administrative expenses $ 438,000 $ 117,000 $ 167,400 $ 153,600 *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 $12,000 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,000 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 $5,100 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 $6,500 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?