Problem 13-26 (Algo) Close or Retain a Store (LO13-2] 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 38 North South Total Store Store Sales $3,960,089 $950,488 $1,584,880 Cost of goods sold 2,187,584 532,224 871,200 Gross margin 1,772,496 418,176 712,800 Selling and administrative expenses: Selling expenses 1,878,440 385,448 415, see Administrative expenses 505,560 139,920 199,188 Total expenses 1,584,000 445,368 614,988 Net operating income (loss) $ 188,496 $(27,192) $ 97,812 East Store $1,425,600 784,680 641,520 357,192 166,452 523,644 $ 117,876 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: Total Selling expenses: Sales salaries Direct advertising General advertising Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses $ 315,480 246,840 59,400 396, eee 21, 120 27,720 11,880 North South East Store Store Store $ 92,499 $117,489 $185,600 67,320 95,840 84,480 14,256 23,760 21,384 112,2ee 158,480 125,488 6,072 7,92 7,128 9,240 9,240 9,240 3,960 3,960 3,960 $325,448 $415, see $357,192 $1,078,440 Allocated on the basis of sales dollars. Total North Store South Store East Store Administrative expenses: Store managers' salaries General office salaries* Insurance on tixtures and inventory Utilities Employnient taxes General office-other Total administrative expenses $ 92,489 66,882 33,880 139,920 75,240 99,8ee $505,560 $ 27,720 15,840 9,980 40,92e 21,789 23,76 $139,920 $ 39,600 26,400 11,880 52,800 28,908 39,6ee $199,188 $ 25,080 23,760 11,220 46,200 24,552 35, 640 $166,452 "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 of 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 $14.520 per quarter. The general manager of the North Store would continue to earn her normal salary of $15.840 per quarter. All other managers and employees in the North 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 person's salary is $5.280 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 company pays employment taxes equal to 15% of their employees' salaries. 9. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries" and "General office-other" 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 person's compensation is $7,920 per quarter