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 Total Store Store Sales $4,300,000 $860,000 $1,720,000 Cost of goods sold 2,365,000 510,000 909,000 Gross margin 1,935,000 350,000 811,000 Selling and administrative expenses : Selling expenses 843,000 244,400 321,500 Administrative expenses 448,000 119,000 170, 400 Total expenses 1,291,000 363,400 491,900 Net operating income (loss) 644,000 $(13,400) $ 319,100 East Store $1,720,000 946,000 774,000 277,100 158,600 435,700 338,300 $ 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: a. 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 Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses $250,200 $ 67,000 178,000 64,000 64,500 12,900 290,000 82,000 22,500 5,900 24,900 8,300 $ 75,800 $107,400 85,000 29,000 25,800 25,800 115,000 93,000 7,300 9,300 8,300 8,300 12,900 $843,000 4,300 $244, 400 4,300 $321,500 4,300 $277,100 *Allocated on the basis of sales dollars. North Store South Store East Store Total Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses $ 89,500 64,500 38,000 84,135 64,365 107,500 $448,000 $ 27,500 $ 36,500 $ 25,500 12,900 25,800 25,800 11,400 15,500 11,100 28, 345 27,640 28,150 17,355 21,960 25,050 21,500 43,000 43,000 $119,000 $170,400 $ 158,600 *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 $11,900 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,900 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 $5,300 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 $6,450 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