Superior Markets, Incorporated, 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, Incorporated

Income Statement

For the Quarter Ended September 30

Total

North Store

South Store

East Store

Sales

$ 3,840,000

$ 921,600

$ 1,536,000

$ 1,382,400

Cost of goods sold

2,121,216

516,096

844,800

760,320

Gross margin

1,718,784

405,504

691,200

622,080

Selling and administrative expenses:

Selling expenses

1,045,760

296,192

403,200

346,368

Administrative expenses

490,240

135,680

193,152

161,408

Total expenses

1,536,000

431,872

596,352

507,776

Net operating income (loss)

$ 182,784

$ (26,368)

$ 94,848

$ 114,304

The North Store has consistently shown losses over the past two years, so management is considering closing this store.

a A detailed breakdown of the selling and administrative expenses shown above is as follows:

b

c Total

d North Store

e South Store

f East Store

g Selling expenses:

h

i

j

k

l Sales salaries

m $ 305,920

n $ 89,600

o $ 113,920

p $ 102,400

q Direct advertising

r 239,360

s 65,280

t 92,160

u 81,920

v General advertising*

w 57,600

x 13,824

y 23,040

z 20,736

a Store rent

b 384,000

c 108,800

d 153,600

e 121,600

f Depreciation of store fixtures

g 20,480

h 5,888

i 7,680

j 6,912

k Delivery salaries

l 26,880

m 8,960

n 8,960

o 8,960

p Depreciation of delivery equipment

q 11,520

r 3,840

s 3,840

t 3,840

u Total selling expenses

v $ 1,045,760

w $ 296,192

x $ 403,200

y $ 346,368

z *Allocated on the basis of sales dollars.

a

b Total

c North Store

d South Store

e East Store

f Administrative expenses:

g

h

i

j

k Store managers' salaries

l $ 89,600

m $ 26,880

n $ 38,400

o $ 24,320

p General office salaries*

q 64,000

r 15,360

s 25,600

t 23,040

u Insurance on fixtures and inventory

v 32,000

w 9,600

x 11,520

y 10,880

z Utilities

a 135,680

b 39,680

c 51,200

d 44,800

e Employment taxes

f 72,960

g 21,120

h 28,032

i 23,808

j General officeother*

k 96,000

l 23,040

m 38,400

n 34,560

o Total administrative expenses

p $ 490,240

q $ 135,680

r $ 193,152

s $ 161,408

t *Allocated on the basis of sales dollars.

u The North Stores rental agreement can be broken with no penalty.

v The North Stores fixtures would be transferred to the other two stores if it were closed.

w The North Stores general manager would be transferred to another position in the company if it were closed. She would fill a position that otherwise would have required hiring a new employee at a salary of $14,080 per quarter. The general manager of the North Store would continue to earn her normal salary of $15,360 per quarter. All other managers and employees in the North Store would be discharged.

x 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 $5,120 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use.

y The company pays employment taxes equal to 15% of their employees' salaries.

z One-third of the North Stores insurance relates to its fixtures.

a The General office salaries and General officeother relate to the overall management of Superior Markets, Incorporated. 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 $7,680 per quarter.

Required:

4 Assuming the North Store's floor space cant be subleased, would you recommend closing the North Store?

5 Assume the North Store's floor space cant be subleased. However, let's introduce three more assumptions. First, if the North Store were closed, one-fourth of its sales would transfer to the East Store due to strong customer loyalty to Superior Markets. Second, the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East Store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?