Problem 13-26 (Algo) Close or Retain a Store [LO13-2] Superior Markets, Incorporated, 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, Incorporated Income Statement Total Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) For the Quarter Ended September 30 North Store $ 3,720,000 2,054,928 $ 892,800 499,968 South Store $ 1,488,000 818,400 East Store $ 1,339,200 736,560 1,665,072 1,013,080 474,920 1,488,000 392,832 669,600 602,640 286,936 390,600 335,544 131,440 187,116 156,364 418,376 577,716 491,908 $ 177,072 $ (25,544) $ 91,884 $ 110,732 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: Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses *Allocated on the basis of sales dollars. Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses *Allocated on the basis of sales dollars. Total North Store South Store East Store $296,360 231,880 55,800 $ 86,800 63,240 13,392 $ 110,360 89,280 $ 99,200 79,360 22,320 20,088 372,000 105,400 148,800 117,800 19,840 5,704 7,440 6,696 26,040 8,680 8,680 8,680 11,160 3,720 3,720 3,720 $ 1,013,080 $ 286,936 $ 390,600 $ 335,544 Total North Store South Store East Store $ 86,800 62,000 $ 26,040 14,880 $ 37,200 24,800 $ 23,560 22,320 31,000 9,300 11,160 10,540 131,440 38,440 49,600 43,400 70,680 20,460 27,156 23,064 93,000 22,320 37,200 33,480 $ 474,920 $ 131,440 $ 187,116 $ 156,364