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 North South East Total Store Store Store Sales $3,360,000 $806,400 $1,344,000 $1,209,600 Cost of goods sold 1,856,064 451,584 739,200 665,280 Gross margin 1,503,936 354,816 604,800 544,320 Selling and administrative expenses: Selling expenses 915, 040 259, 168 352,800 303,072 Administrative expenses 428,960 118,720 169,008 141,232 Total expenses 1,344,000 377,888 521,808 444,304 Net operating income (loss) $ 159,936 $(23,072) $ 82,992 $ 100,016 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: 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 North South Total Store Store $267,680 $78,400 $ 99,680 209,440 57,120 80,640 50,400 12,096 20, 160 336,000 95,200 134,400 17,920 5,152 6,720 23,520 7,840 7,840 10,080 3,360 3,360 $915, 040 $259, 168 $352,800 $ 89,600 71,680 18,144 106,400 6,048 7,840 3,360 $303,072 "Allocated on the basis of sales dollars. 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 $ 78,400 56,000 28,000 118,720 63,840 84,900 $428,960 $ 23,520 $ 33,600 $ 21,280 13,440 22,400 20,160 8,400 10,080 9,520 34,720 44,800 39,200 18,480 24,528 20,832 20,160 33,600 30, 240 $118,720 $169,008 $141,232 "Allocated on the basis of sales dollars. 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 $12,320 per quarter. The general manager of the North Store would continue to earn her normal salary of $13,440 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 $4,480 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, Inc. 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 $6,720 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 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