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:

a. The breakdown of the selling and administrative expenses 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 management 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 office other*		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.

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

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

d. 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 be retained at her normal salary of $14,800 per quarter. All other employees in the store would be discharged.

e. 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.

f. The companys employment taxes are 15% of salaries.

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

h. 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. Prepare a schedule showing the change in revenues and expenses and the impact on the companys overall net operating income that would result if the North Store were closed. (Any losses/ reductions should be indicated by a minus sign.)

	Gross margin lost if the store is closed $68,000 Costs that can be avoided: Store management salaries Sales salaries Delivery salaries Insurance on inventories Employment taxes Direct advertising 70,000 Utilities 24,060 Store rent General office compensation Salary of new manager Total costs that can be avoided Decrease in company profits if the North Store is closed

2. Based on your computations in (1) above, what recommendation would you make to the management of Superior Markets, Inc.?

	The North Store should be closed.
	The North Store should not be closed.

3. Assume that if the North Store were closed, at least one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. The East Store has enough capacity to handle the increased sales. You may assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in that store.

a. Calculate the net advantage of closing the North Store. (Any losses should be indicated by a minus sign.)

	Gross margin lost if the North Store is closed Gross margin gained from the East Store Net operating (loss) in gross margin 0 Less costs that can be avoided if the North Store is closed Net advantage (disadvantage) of closing the North store $0