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 ) 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 )

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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

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

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

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

Depreciation of delivery equipment

13,200

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.) 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.)