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 $ 4,140,000 $ 993,600 $ 1,656,000 $ 1,490,400 Cost of goods sold 2,286,936 556,416 910,800 819,720 Gross margin 1,853,064 437,184 745,200 670,680 Selling and administrative expenses: Selling expenses 1,127,460 319,332 434,700 373,428 Administrative expenses 528,540 146,280 208,242 174,018 Total expenses 1,656,000 465,612 642,942 547,446 Net operating income (loss) $ 197,064 $ (28,428 ) $ 102,258 $ 123,234 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 $ 329,820 $ 96,600 $ 122,820 $ 110,400 Direct advertising 258,060 70,380 99,360 88,320 General advertising* 62,100 14,904 24,840 22,356 Store rent 414,000 117,300 165,600 131,100 Depreciation of store fixtures 22,080 6,348 8,280 7,452 Delivery salaries 28,980 9,660 9,660 9,660 Depreciation of delivery equipment 12,420 4,140 4,140 4,140 Total selling expenses $ 1,127,460 $ 319,332 $ 434,700 $ 373,428 *Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 96,600 $ 28,980 $ 41,400 $ 26,220 General office salaries* 69,000 16,560 27,600 24,840 Insurance on fixtures and inventory 34,500 10,350 12,420 11,730 Utilities 146,280 42,780 55,200 48,300 Employment taxes 78,660 22,770 30,222 25,668 General officeother* 103,500 24,840 41,400 37,260 Total administrative expenses $ 528,540 $ 146,280 $ 208,242 $ 174,018 *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 $15,180 per quarter. The general manager of the North Store would continue to earn her normal salary of $16,560 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 $5,520 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 $8,280 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?