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	$	4,400,000		$	880,000		$	1,760,000		$	1,760,000
Cost of goods sold		2,420,000			525,000			927,000			968,000
Gross margin		1,980,000			355,000			833,000			792,000
Selling and administrative expenses:
Selling expenses:		845,000			245,400			322,000			277,600
Administrative expenses		453,000			120,000			171,900			161,100
Total expenses		1,298,000			365,400			493,900			438,700
Net operating income (loss)	$	682,000		$	(10,400	)	$	339,100		$	353,300

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 is as follows:

	Total		North Store		South Store		East Store
Selling expenses:
Sales salaries	$	243,600	$	65,400	$	73,400	$	104,800
Direct advertising		179,000		65,000		86,000		28,000
General advertising*		66,000		13,200		26,400		26,400
Store rent		295,000		83,000		116,000		96,000
Depreciation of store fixtures		23,000		6,000		7,400		9,600
Delivery salaries		25,200		8,400		8,400		8,400
Depreciation of delivery equipment		13,200		4,400		4,400		4,400
Total selling expenses	$	845,000	$	245,400	$	322,000	$	277,600

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store management salaries	$	91,000	$	28,000	$	37,000	$	26,000
General office salaries*		66,000		13,200		26,400		26,400
Insurance on fixtures and inventory		39,000		11,700		16,000		11,300
Utilities		83,130		27,850		26,720		28,560
Employment taxes		63,870		17,250		21,780		24,840
General office other*		110,000		22,000		44,000		44,000
Total administrative expenses	$	453,000	$	120,000	$	171,900	$	161,100

*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 $12,200 per quarter. The general manager of the North Store would be retained at her normal salary of $13,200 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 $5,400 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 $6,600 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.