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Superior Markets, Inc., 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, Inc. Income Statement For the Quarter Ended September 30
	Total			North Store			South Store			East Store
Sales	$	4,900,000		$	980,000		$	1,960,000		$	1,960,000
Cost of goods sold		2,695,000			620,000			997,000			1,078,000
Gross margin		2,205,000			360,000			963,000			882,000
Selling and administrative expenses:
Selling expenses		855,000			250,400			324,500			280,100
Administrative expenses		478,000			125,000			179,400			173,600
Total expenses		1,333,000			375,400			503,900			453,700
Net operating income (loss)	$	872,000		$	(15,400	)	$	459,100		$	428,300

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:

1. 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	$	252,600	$	65,400	$	75,400	$	111,800
Direct advertising		184,000		70,000		91,000		23,000
General advertising*		73,500		14,700		29,400		29,400
Store rent		278,000		80,000		107,000		91,000
Depreciation of store fixtures		25,500		6,500		7,900		11,100
Delivery salaries		26,700		8,900		8,900		8,900
Depreciation of delivery equipment		14,700		4,900		4,900		4,900
Total selling expenses	$	855,000	$	250,400	$	324,500	$	280,100

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store managers' salaries	$	98,500	$	30,500	$	39,500	$	28,500
General office salaries*		73,500		14,800		29,400		29,300
Insurance on fixtures and inventory		44,000		13,200		18,500		12,300
Utilities		71,805		24,060		20,020		27,725
Employment taxes		67,695		17,940		22,980		26,775
General officeother*		122,500		24,500		49,000		49,000
Total administrative expenses	$	478,000	$	125,000	$	179,400	$	173,600

*Allocated on the basis of sales dollars.

2. The lease on the building housing the North Store can be broken with no penalty.

3. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

4. 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 $13,800 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,800 per quarter. All other managers and employees in the North store would be discharged.

5. 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 $5,900 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.

6. The company pays employment taxes equal to 15% of their employees' salaries.

7. One-third of the insurance in the North Store is on the stores fixtures.

8. The General office salaries and General officeother relate to the overall management of Superior Markets, Inc. 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 $7,400 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?

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