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 South Store Sales $ 4,140,000 $ 993,600 $ 1,656,000 Cost of goods sold 2,286,936 556, 416 910,800 Gross margin 1,853,064 437, 184 745,200 Selling and administrative expenses: Selling expenses 1,127,460 319, 332 434,700 Administrative expenses 528,540 146,280 208,242 Total expenses 1,656,000 465, 612 642,942 Net operating income (loss) $ 197,064 $ (28,428) $ 102,258 East Store $ 1,490,400 819,720 670, 680 373,428 174,018 547,446 $ 123,234 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 $ 329,820 258,060 62,100 414,000 22,080 28,980 12,420 $ 1,127,460 $ 96,600 70,380 14,904 117,300 6,348 9,660 4,140 $ 319,332 $ 122,820 99,360 24,840 165,600 8,280 9,660 4,140 $ 434,700 $ 110,400 88,320 22,356 131, 100 7,452 9,660 4,140 $ 373,428 Total North Store South Store East Store 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. $ 96,600 69,000 34,500 146,280 78,660 103,500 $ 528,540 $ 28,980 16,560 10,350 42,780 22, 770 24,840 $ 146,280 $ 41,400 27,600 12,420 55,200 30, 222 41,400 $ 208, 242 $ 26,220 24,840 11,730 48,300 25,668 37,260 $ 174,018 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 $15,180 per quarter. The general manager of the North Store would continue to earn her normal salary of $16,560 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 $5,520 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, 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 $8,280 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