Problem 1226 Close or Retain a Store [LO122] 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 North South East Total Store Store Store Sales $4,800,000 $960,000 $1,920,000 $1,920,000 Cost of goods sold 2,640,000 600,000 984,000 1,056,000 Gross margin 2,160,000 360,000 936,000 864,000 Selling and administrative expenses: Selling expenses 853,000 249,400 324,000 279,600 Administrative expenses 473,000 124,000 177,900 171,100 Total expenses 1,326,000 373,400 501,900 450,700 Net operating income (loss) S 834,000 S(13,400) S 434,100 S 413,300 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 that are shown above is as follows: North South East Total Store Store Store Selling expenses: Sales salaries $246, 200 $ 59 , 000 $ 77, 800 $109 , 400 Direct advertising 183 , 000 69 , 000 90 , 000 24 , 000 General advertising* 72, 000 14 , 400 28 , 800 28 , 800 Store rent 286 , 000 87 , 000 106 , 000 93 , 000 Depreciation of store fixtures 25 , 000 6 , 400 7, 800 10 , 800 Delivery salaries 26, 400 8 , 800 8 , 800 8 , 800 Depreciation of delivery equipment 14 , 400 4, 800 4, 800 4, 800 Total selling expenses $853 , 000 $249 , 400 $324, 000 $279 , 600 Allocated on the basis of sales dollars. North South East Total Store Store Store Administrative expenses: Store managers' salaries $ 97, 000 $ 30, 000 $ 39, 000 $ 28, 000 General office salaries* 72, 000 14 , 400 28 , 800 28 , 800 Insurance on fixtures and inventory 43 , 000 12, 900 18 , 000 12 , 100 Utilities 74 , 760 25 , 870 20 ,940 27 , 950 Employment taxes 66 , 240 16, 830 23 , 160 26 , 250 General office other* 120 , 000 24, 000 48 , 000 48 , 000 Total administrative expenses $473 , 000 $124 , 000 $177, 900 $171 , 100 *Allocated on the basis s of sales dollars