Problem 12-26 Close or Retain a Store [LO12-2] 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 Store South Store East Store Total Sales Cost of goods sold Gross margin Selling and administrative expenses: $4,500,000 $900,000 $1,800,000 $1,800,000 990,000 810,000 2,475,000 550,000 2,025,000 350,000 935,000 865,000 847,000 246,400 458,000 121,000 1,305,000 367,400 278,100 163,600 441,700 $(17,400) 369,100 $ 368,300 322,500 173,400 495,900 Selling expenses Administrative expenses Total expenses Net operating income (loss) 720,000 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 Store South Store East Store Total Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery $237,000 63,800 66,000 13,500 180,000 67,500 300,000 23,500 25,500 13,500 87,000 27,000 84,000 117,000 7,500 8,500 71,000 $102,200 27,000 27,000 99,000 9,900 8,500 6,100 8,500 4,500 4,500 4,500 equipment Total selling expenses $847,000 $246,400 $322,500 $278,100 Allocated on the basis of sales dollars