Problem 13-26 (Static) Close or Retain a Store [LO13-2] 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 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) North Store South Store East Store $ 3,000,000 $ 720,000 $ 1,200,000 $ 1,080,000 1,657,200 403,200 660,000 594,000 1,342,800 316,800 540,000 486,000 817,000 231,400 315,000 270,600 383,000 106,000 150,900 126,100 1,200,000 337,400 465,900 396,700 $ 142,800 $ (20,600) $ 74,100 $ 89,300 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 that are shown above is as follows: Selling expenses: Sales salaries Direct advertising General advertising* Store rent Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses *Allocated on the basis of sales dollars. Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses *Allocated on the basis of sales dollars. Total North Store South Store East Store $ 239,000 187,000 45,000 $ 70,000 51,000 $ 89,000 72,000 $ 80,000 64,000 10,800 18,000 16,200 300,000 85,000 120,000 95,000 16,000 4,600 6,000 5,400 21,000 7,000 7,000 7,000 9,000 3,000 3,000 3,000 $ 817,000 $ 231,400 $ 315,000 $ 270,600 Total North Store South Store East Store $ 70,000 50,000 $ 21,000 12,000 $ 30,000 $ 19,000 20,000 18,000 25,000 7,500 9,000 8,500 106,000 31,000 40,000 35,000 57,000 16,500 21,900 18,600 75,000 18,000 30,000 27,000 $ 383,000 $ 106,000 $ 150,900 $ 126,100