Superior Markets, Incorporated, 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, Incorporated Income Statement For the Quarter Ended September 30 TotalNorth StoreSouth StoreEast StoreSales$ 3,720,000$ 892,800$ 1,488,000$ 1,339,200Cost of goods sold2,054,928499,968818,400736,560Gross margin1,665,072392,832669,600602,640Selling and administrative expenses: Selling expenses1,013,080286,936390,600335,544Administrative expenses474,920131,440187,116156,364Total expenses1,488,000418,376577,716491,908Net operating income (loss)$ 177,072$ (25,544)$ 91,884$ 110,732

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:

TotalNorth StoreSouth StoreEast StoreSelling expenses: Sales salaries$ 296,360$ 86,800$ 110,360$ 99,200Direct advertising231,88063,24089,28079,360General advertising*55,80013,39222,32020,088Store rent372,000105,400148,800117,800Depreciation of store fixtures19,8405,7047,4406,696Delivery salaries26,0408,6808,6808,680Depreciation of delivery equipment11,1603,7203,7203,720Total selling expenses$ 1,013,080$ 286,936$ 390,600$ 335,544

*Allocated on the basis of sales dollars.

TotalNorth StoreSouth StoreEast StoreAdministrative expenses: Store managers' salaries$ 86,800$ 26,040$ 37,200$ 23,560General office salaries*62,00014,88024,80022,320Insurance on fixtures and inventory31,0009,30011,16010,540Utilities131,44038,44049,60043,400Employment taxes70,68020,46027,15623,064General officeother*93,00022,32037,20033,480Total administrative expenses$ 474,920$ 131,440$ 187,116$ 156,364

*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 $13,640 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,880 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 $4,960 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, Incorporated. 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 $7,440 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?