National Ltd is a wholesaler who sells its products to a wide range of retailers. Marketing is done through three geographical areas: the South, the Midlands and the North. The estimates of the costs and revenues for each sales territory for the next accounting period are as follows:

The products are packaged and despatched from a central warehouse, and it is estimated that 50%
of the costs are variable and the remainder are fixed. All of the selling costs are fixed, with the exception of salesmen's expenses, which are variable with sales revenue. All of the administration expenses of the headquarters are common and unavoidable to all alternatives, and have been apportioned to sales territories on the basis of sales value. In view of the loss, should the North area be closed?

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Sales Cost of goods sold Gross profit Fixed selling costs: South Midlands North () () () () () () Total () 900 000 1000000 900 000 2800 000 400 000 450 000 500 000 1350000 500000 550 000 400 000 1450000 Salesmen's salaries 80 000 100000 120 000 Sales office and management expenses 40000 Advertising 50000 60000 50 000 80 000 50 000 Salesmens expenses 50000 220000 60000 270000 80 000 330000 Headquarters administration expenses 80000 90000 Warehousing costs 32000 36 000 90000 36000 Total costs 332000 396 000 456 000 1184 000 Net profit (or loss) 168000 154000 (56 000) 266000