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	$	4,300,000		$	860,000		$	1,720,000		$	1,720,000
Cost of goods sold		2,365,000			510,000			909,000			946,000
Gross margin		1,935,000			350,000			811,000			774,000
Selling and administrative expenses:
Selling expenses:		843,000			244,400			321,500			277,100
Administrative expenses		448,000			119,000			170,400			158,600
Total expenses		1,291,000			363,400			491,900			435,700
Net operating income (loss)	$	644,000		$	(13,400	)	$	319,100		$	338,300

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	$	250,200	$	67,000	$	75,800	$	107,400
Direct advertising		178,000		64,000		85,000		29,000
General advertising*		64,500		12,900		25,800		25,800
Store rent		290,000		82,000		115,000		93,000
Depreciation of store fixtures		22,500		5,900		7,300		9,300
Delivery salaries		24,900		8,300		8,300		8,300
Depreciation of delivery equipment		12,900		4,300		4,300		4,300
Total selling expenses	$	843,000	$	244,400	$	321,500	$	277,100

*Allocated on the basis of sales dollars.

	Total		North Store		South Store		East Store
Administrative expenses:
Store management salaries	$	89,500	$	27,500	$	36,500	$	25,500
General office salaries*		64,500		13,000		25,800		25,700
Insurance on fixtures and inventory		38,000		11,400		15,500		11,100
Utilities		84,135		28,230		27,640		28,265
Employment taxes		64,365		17,370		21,960		25,035
General office other*		107,500		21,500		43,000		43,000
Total administrative expenses	$	448,000	$	119,000	$	170,400	$	158,600

*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 $12,000 per quarter. The general manager of the North Store would be retained at her normal salary of $13,000 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 $5,300 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 $6,500 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 losses 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.