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: Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total expenses Net operating income (loss) Selling expenses: Sales salaries Direct advertising General advertising* Store rent Superior Markets, Incorporated Income Statement For the Quarter Ended September 30 Total $ 3,240,000 1,789,776 1,450,224 Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses 882,360 413,640 1,296,000 $ 154,224 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. a. The breakdown of the selling and administrative expenses that are shown above is as follows: 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: Total $ 258,120 201,960 48,600 324,000 17,280 22,680 9,720 $ 882,360 North Store $ 777,600 435,456 342,144 Total 249,912 114,480 364,392 $ (22,248) $ 75,600 54,000 27,000 114,480 61,560 81,000 $ 413,640 $ 75,600 55,080 11,664 91,800 4,968 7,560 3,240 $ 249,912 South Store $ 1,296,000 712,800 583,200 North Store South Store North Store 340,200 162,972 503,172 $ 80,028 $ 22,680 12,960 8,100 33,480 17,820 19,440 $ 114,480 $ 96,120 77,760 19,440 129,600 6,480 7,560 3,240 $ 340,200 South Store East Store $1,166,400 641,520 524,880 $ 32,400 21,600 9,720 43,200 23,652 32,400 $ 162,972 292,248 136,188 428,436 $ 96,444 East Store $ 86,400 69,120 17,496 102,600 5,832 7,560 3,240 $ 292,248 East Store $ 20,520 19,440 9,180 37,800 20,088 29,160 $ 136, 188 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 $11,880 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,960 per quarter. All other managers and employees in the North 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 person's salary is $4,320 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 company pays employment taxes equal to 15% of their employees' salaries. g. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries" and "General office-other" 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 person's compensation is $6,480 per quarter.