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 $3,840, eee $921,600 $1,536, eee Cost of goods sold 2,121, 216 516,096 844,800 Gross margin 1,718,784 405, 504 691, 200 Selling and administrative expenses : Selling expenses 1,845, 760 296, 192 403, 2ee Administrative expenses 490, 240 135, 680 193, 152 Total expenses 1,536,000 431,872 596,352 Net operating income (loss) $ 182,784 $(26,368) $ 94,848 East Store $1,382,400 760,320 622,080 346, 368 161,408 507,776 114, 304 $ 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 East Store Total $ Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses 305,920 239, 360 57,600 384, eee 20,480 26,880 $ 89,600 65,280 13,824 108,800 5,888 8,960 $113,920 92,160 23, 040 153,600 7,680 8,960 $102,400 81,920 20,736 121,600 6,912 8,960 3,840 11,520 3,840 3,840 $1,045,760 $ 296, 192 $493,200 $ 346,368 *Allocated on the basis of sales dollars. North Store South Store East Store Total Administrative expenses: Store managers' salaries General of ce salaries Insurance on fixtures and inventory Utilities Employment taxes General office-other Total administrative expenses $ 89,600 64,000 32,000 135, 680 72,960 96, eee $ 490,240 $ 26,880 15,360 9,600 39,689 21, 120 23,040 $135,689 $ 38,400 25,600 11,520 51,200 28,32 38,400 $ 193,152 $ 24,320 23,840 10,880 44,800 23,808 34,560 $161, 408 *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 $14,080 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,360 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 $5,120 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' salarles. 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 $7,680 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 yleld 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