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 East Store Sales $ 3,540,000 $ 849,600 $ 1,416,000 $ 1,274,400 Cost of goods sold 1,955,496 475,776 778,800 700,920 Gross margin 1,584,504 373,824 637,200 573,480 Selling and administrative expenses: Selling expenses 964,060 273,052 371,700 319,308 Administrative expenses 451,940 125,080 178,062 148,798 Total expenses 1,416,000 398,132 549,762 468,106 Net operating income (loss) $ 168,504 $ (24,308) $ 87,438 $ 105,374 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: Total North Store South Store East Store Selling expenses: Sales salaries $ 282,020 $ 82,600 $ 105,020 $ 94,400 Direct advertising 220,660 60,180 84,960 75,520 General advertising* 53,100 12,744 21,240 19,116 Store rent 354,000 100,300 141,600 112,100 Depreciation of store fixtures 18,880 5,428 7,080 6,372 Delivery salaries 24,780 8,260 8,260 8,260 Depreciation of delivery equipment 10,620 3,540 3,540 3,540 Total selling expenses $ 964,060 $ 273,052 $ 371,700 $ 319,308 *Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 82,600 $ 24,780 $ 35,400 $ 22,420 General office salaries* 59,000 14,160 23,600 21,240 Insurance on fixtures and inventory 29,500 8,850 10,620 10,030 Utilities 125,080 36,580 47,200 41,300 Employment taxes 67,260 19,470 25,842 21,948 General officeother* 88,500 21,240 35,400 31,860 Total administrative expenses $ 451,940 $ 125,080 $ 178,062 $ 148,798 *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 $12,980 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,160 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 $4,720 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 $7,080 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? How much employee salaries will the company avoid if it closes the North Store? How much employment taxes will the company avoid if it closes the North Store? What is the financial advantage (disadvantage) of closing the North Store? 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?