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 Total North Store Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss). South Store $ 3,840,000 $ 921,600 $ 1,536,000 East Store: $ 1,382,400 2,121,216 1,718,784 516,096 844,800 760,320 405,504 691,200 622,080 1,045,760 490,240 1,536,000 296,192 403,200 346,368 135,680 193,152 161,408 431,872 596,352 587,776 $182,784 $ (26,368) $ 94,848 $ 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: Selling expenses: Sales salaries Direct advertising General advertising+ Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses "Allocated on the basis of sales dollars. Administrative expenses: Store managers' salaries General office salaries Insurance on fixtures and inventory Utilities Employment taxes. General office-other* Total administrative expenses "Allocated on the basis of sales dollars. Total North Store South Store East Store $305,920 239,360 57,600 $ 89,600 $113,920 $ 102,400 65,280 92,160 81,920 13,824 23,040 20,736 384,000 108,800 153,600 121,600 20,480 5,888 7,680 6,912 26,880 8,960 8,960 8,960 11,520 3,840 3,840 3,840 $ 1,045,760 $296,192 $ 403,200 $346,368 Total North Store South Store East Store. $ 89,600 $ 26,880 $ 38,400 $ 24,320 64,000 15,360 25,600 23,040 32,000 9,600 11,520 10,880 135,680 39,680 51,200 44,800 72,960 21,120 28,032 23,808 96,000 23,040 38,400 34,560 $ 490,240 $ 135,680 $193,152 $161,408 k ces 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. 1. 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, Incorporated. 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 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