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
	Total			North Store			South Store			East Store
Sales	$	3,780,000		$	980,000		$	1,460,000		$	1,340,000
Cost of goods sold		2,088,800			548,800			803,000			737,000
Gross margin		1,691,200			431,200			657,000			603,000
Selling and administrative expenses:
Selling expenses:		1,065,300			314,600			396,900			353,800
Administrative expenses		550,240			158,940			208,280			183,020
Total expenses		1,615,540			473,540			605,180			536,820
Net operating income (loss)	$	75,660		$	(42,340	)	$	51,820		$	66,180

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 is as follows:

	Total		North Store		South Store		East Store
Selling expenses:
Sales salaries	$	317,000	$	96,000	$	115,000	$	106,000
Direct advertising		226,000		64,000		85,000		77,000
General advertising*		56,700		14,700		21,900		20,100
Store rent		339,000		98,000		133,000		108,000
Depreciation of store fixtures		38,100		12,400		12,500		13,200
Delivery salaries		60,000		20,000		20,000		20,000
Depreciation of delivery equipment		28,500		9,500		9,500		9,500
Total selling expenses	$	1,065,300	$	314,600	$	396,900	$	353,800

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store management salaries	$	109,000	$	34,000	$	43,000	$	32,000
General office salaries*		75,600		19,600		29,200		26,800
Insurance on fixtures and inventory		41,900		11,400		15,500		15,000
Utilities		145,000		44,000		53,000		48,000
Employment taxes		84,240		25,440		31,080		27,720
General office other*		94,500		24,500		36,500		33,500
Total administrative expenses	$	550,240	$	158,940	$	208,280	$	183,020

*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 if 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 $18,600 per quarter. The general manager of the North Store would be retained at her normal salary of $19,600 per quarter. All other employees in the 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 persons salary is $17,000 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 companys employment taxes are 15% of salaries.
g.	One-third of the insurance in the North Store is on the stores fixtures.
h.	The General office salaries and General officeother 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 persons compensation is $9,800 per quarter.

Required:
1.	Prepare a schedule showing the change in revenues and expenses and the impact on the companys overall net operating income that would result if the North Store were closed. (Any losses/ reductions should be indicated by a minus sign.)

2.

Based on your computations in (1) above, what recommendation would you make to the management of Superior Markets, Inc.?

	The North Store should be closed.
	The North Store should not be closed.

3.

Assume that if the North Store were closed, at least one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. The East Store has enough capacity to handle the increased sales. You may assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in that store.

a.	Calculate the net advantage of closing the North Store. (Any reductions or outflows should be indicated by a minus sign.)

b.

What recommendation would you make to the management of Superior Markets, Inc.?

	The North Store should be closed.
	The North Store should not be closed.