Reference no: EM131784228

Problem - Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented 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	$3,000,000	$720,000	$1,200,000	$1,080,000
Cost of goods sold	1,657,200	403,200	660,000	594,000
Gross margin	1,342,800	316,800	540,000	486,000
Selling and administrative expenses:
Selling expenses:
Sales salaries	239,000	70,000	89,000	80,000
Direct advertising	187,000	51,000	72,000	64,000
General advertising	45,000	10,800	18,000	16,200
Store rent	300,000	85,000	120,000	95,000
Depreciation of store fixtures	16,000	4,600	6,000	5,400
Delivery salaries	21,000	7,000	7,000	7,000
Depreciation of delivery equipment	9,000	3,000	3,000	3,000
Total selling expenses	817,000	231,400	315,000	270,600
Administrative expenses:
Store management salaries	70,000	21,000	30,000	19,000
General office salaries	50,000	12,000	20,000	18,000
Insurance on fixtures and inventory	25,000	7,500	9,000	8,500
Utilities	106,000	31,000	40,000	35,000
Employment taxes	57,000	16,500	21,900	18,600
General office - other	75,000	18,000	30,000	27,000
Total administrative expenses	383,000	106,000	150,900	126,100
Total expenses	1,200,000	337,400	465,900	396,700
Net operating income (loss)	$142,800	$(20,600)	$74,100	$89,300

Additional Data:

Manager's salary per quarter	$12,000
New employee's salary per quarter	$11,000
Employment tax as a percentage of salaries	15%
Delivery person's salary per quarter	$4,000
Insurance related to downtown fixtures	1/3
Discharged employee's salary per quarter	$6,000
Assumed sales transferred to East store	25%

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 retained 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:

b. The lease on the building housing the North Store can be broken with no penalty.

c. The store fixtures being used in the North Store would be retained and transferred to the other stores if the North Store were closed.

d. One of the store managers 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. The general manager of the North Store would be retained at her normal salary of $12,000 per quarter. All other employees and managers 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 $4,000 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's employment taxes are 15% of salaries.

g. One-third of the insurance in the North Store is on the store's fixtures which will be transferred to the other stores along with the fixtures.

h. The "General office salaries" 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 person's salary is $6,000 per quarter.

i. General office-other also relates to the overall operation of Superior Markets, Inc., and will be allocated to the other stores if North Store is closed.

Required: Prepare a schedule showing the change in revenues and expenses and the impact on the company's overall net income that would result if the North Store were closed. What is your recommendation?