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 $4,200,000 $840,000 $1,680,000 $1,680,000 Cost of goods sold 2,310,000 500,000 886,000 924,000 Gross margin 1,890,000 340,000 794, 000 756,000 Selling and administrative expenses: Selling expenses 841,000 243,400 321,000 276,600 Administrative expenses 443,000 118,000 168,900 156, 100 Total expenses 1,284,000 361,400 489,900 432,700 Net operating income $ 606,000 $(21,400) $ 304,100 $ 323, 300 (loss) 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 Total North Store South Store Store Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses $256,800 $ 68,600 $ 78,200 $110,000 177,000 63,000 84,000 30,000 63,000 12,600 25,200 25,200 285,000 81,000 114,000 90,000 22,000 5,800 7,200 9,000 24,600 8,2008,200 - 8,200 12,600 4,200 4,200 4,200 $841,000 $243,400 $321,000 $276,600 *Allocated on the basis of sales dollars. North Store South Store East Store $ 36,000 25, 200 Total Administrative expenses: Store managers' salaries $ 88,000 General office salaries* 63,000 Insurance on fixtures and 37,000 inventory Utilities 85,140 Employment taxes 64,860 General office-other* 105,000 Total administrative expenses $443,000 15,000 $ 27,000 12,600 11,100 28,840 17,460 21,000 $118,000 28,560 22,140 42,000 $168,900 $ 25,000 25,200 10,900 27,740 25,260 42,000 $156, 100 *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 $11,600 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,600 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 $5,200 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 $6,300 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