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 $ 3,960,000 $ 950,400 $ 1,584,000 $ 1,425,600 Cost of goods sold 2,187,504 532,224 871,200 784,080 Gross margin 1,772,496 418,176 712,800 641,520 Selling and administrative expenses: Selling expenses 1,078,440 305,448 415,800 357,192 Administrative expenses 505,560 139,920 199,188 166,452 Total expenses 1,584,000 445,368 614,988 523,644 Net operating income (loss) $ 188,496 $ (27,192) $ 97,812 $ 117,876 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 $ 315,480 $ 92,400 $ 117,480 $ 105,600 Direct advertising 246,840 67,320 95,040 84,480 General advertising* 59,400 14,256 23,760 21,384 Store rent 396,000 112,200 158,400 125,400 Depreciation of store fixtures 21,120 6,072 7,920 7,128 Delivery salaries 27,720 9,240 9,240 9,240 Depreciation of delivery equipment 11,880 3,960 3,960 3,960 Total selling expenses $ 1,078,440 $ 305,448 $ 415,800 $ 357,192 *Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 92,400 $ 27,720 $ 39,600 $ 25,080 General office salaries* 66,000 15,840 26,400 23,760 Insurance on fixtures and inventory 33,000 9,900 11,880 11,220 Utilities 139,920 40,920 52,800 46,200 Employment taxes 75,240 21,780 28,908 24,552 General officeother* 99,000 23,760 39,600 35,640 Total administrative expenses $ 505,560 $ 139,920 $ 199,188 $ 166,452 *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 $14,520 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,840 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 $5,280 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 $7,920 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?