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 $ 3,120,000 $ 748,800 $ 1,248,000 $ 1,123,200 Cost of goods sold 1,723,488 419,328 686,400 617,760 Gross margin 1,396,512 329,472 561,600 505,440 Selling and administrative expenses: Selling expenses 849,680 240,656 327,600 281,424 Administrative expenses 398,320 110,240 156,936 131,144 Total expenses 1,248,000 350,896 484,536 412,568 Net operating income (loss) $ 148,512 $ (21,424) $ 77,064 $ 92,872 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 $ 248,560 $ 72,800 $ 92,560 $ 83,200 Direct advertising 194,480 53,040 74,880 66,560 General advertising* 46,800 11,232 18,720 16,848 Store rent 312,000 88,400 124,800 98,800 Depreciation of store fixtures 16,640 4,784 6,240 5,616 Delivery salaries 21,840 7,280 7,280 7,280 Depreciation of delivery equipment 9,360 3,120 3,120 3,120 Total selling expenses $ 849,680 $ 240,656 $ 327,600 $ 281,424 *Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries $ 72,800 $ 21,840 $ 31,200 $ 19,760 General office salaries* 52,000 12,480 20,800 18,720 Insurance on fixtures and inventory 26,000 7,800 9,360 8,840 Utilities 110,240 32,240 41,600 36,400 Employment taxes 59,280 17,160 22,776 19,344 General officeother* 78,000 18,720 31,200 28,080 Total administrative expenses $ 398,320 $ 110,240 $ 156,936 $ 131,144 *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 $11,440 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,480 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 $4,160 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 $6,240 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?