Superior Markets, Inc., operates three stores in a largemetropolitan area. A segmented absorption costing income statementfor 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	$	4,600,000		$	920,000		$	1,840,000		$	1,840,000
Cost of goods sold		2,530,000			565,000			953,000			1,012,000
Gross margin		2,070,000			355,000			887,000			828,000
Selling and administrative expenses:
Selling expenses		849,000			247,400			323,000			278,600
Administrative expenses		463,000			122,000			174,900			166,100
Total expenses		1,312,000			369,400			497,900			444,700
Net operating income (loss)	$	758,000		$	(14,400	)	$	389,100		$	383,300

The North Store has consistently shown losses over the past twoyears. For this reason, management is giving consideration toclosing the store. The company has asked you to make arecommendation as to whether the store should be closed or keptopen. The following additional information is available for youruse:

a. The breakdown of the selling and administrative expenses thatare shown above is as follows:

	Total		North Store		South Store		East Store
Selling expenses:
Sales salaries	$	230,400	$	62,200	$	68,600	$	99,600
Direct advertising		181,000		67,000		88,000		26,000
General advertising*		69,000		13,800		27,600		27,600
Store rent		305,000		85,000		118,000		102,000
Depreciation of store fixtures		24,000		6,200		7,600		10,200
Delivery salaries		25,800		8,600		8,600		8,600
Depreciation of delivery equipment		13,800		4,600		4,600		4,600
Total selling expenses	$	849,000	$	247,400	$	323,000	$	278,600

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store managers' salaries	$	94,000	$	29,000	$	38,000	$	27,000
General office salaries*		69,000		13,800		27,600		27,600
Insurance on fixtures and inventory		41,000		12,300		17,000		11,700
Utilities		81,120		26,860		24,880		29,380
Employment taxes		62,880		17,040		21,420		24,420
General office—other*		115,000		23,000		46,000		46,000
Total administrative expenses	$	463,000	$	122,000	$	174,900	$	166,100

*Allocated on the basis of sales dollars.

b. The lease on the building housing the North Store can bebroken with no penalty.

c. The fixtures being used in the North Store would betransferred to the other two stores if the North Store wereclosed.

d. The general manager of the North Store would be retained andtransferred to another position in the company if the North Storewere closed. She would be filling a position that would otherwisebe filled by hiring a new employee at a salary of $12,800 perquarter. The general manager of the North Store would continue toearn her normal salary of $13,800 per quarter. All other managersand employees in the North store would be discharged.

e. The company has one delivery crew that serves all threestores. One delivery person could be discharged if the North Storewere closed. This person’s salary is $5,600 per quarter. Thedelivery equipment would be distributed to the other stores. Theequipment does not wear out through use, but does eventually becomeobsolete.

f. The company pays employment taxes equal to 15% of theiremployees' salaries.

g. One-third of the insurance in the North Store is on thestore’s fixtures.

h. The “General office salaries” and “General office—other”relate to the overall management of Superior Markets, Inc. If theNorth Store were closed, one person in the general office could bedischarged because of the decrease in overall workload. Thisperson’s compensation is $6,900 per quarter.

Required:

1. How much employee salaries will the company avoid if itcloses the North Store?

2. How much employment taxes will the company avoid if it closesthe North Store?

3. What is the financial advantage (disadvantage) of closing theNorth Store?

4. Assuming that the North Store's floor space can’t besubleased, 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 thatif the North Store were closed, one-fourth of its sales wouldtransfer to the East Store, due to strong customer loyalty toSuperior Markets. Second, assume that the East Store has enoughcapacity to handle the increased sales that would arise fromclosing the North Store. Third, assume that the increased sales inthe East Store would yield the same gross margin as a percentage ofsales as present sales in the East store. Given these newassumptions, what is the financial advantage (disadvantage) ofclosing the North Store?