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Thrifty Markets, Inc., operates three stores in a large metropolitan area. The companys segmented absorption costing income statement for the last quarter is given below:

Thrifty Markets, Inc. Income Statement For the Quarter Ended March 31
	Total			Uptown Store			Downtown Store			Westpark Store
Sales	$	3,100,000		$	1,200,000		$	600,000		$	1,300,000
Cost of goods sold		1,582,000			660,000			356,000			566,000
Gross margin		1,518,000			540,000			244,000			734,000
Selling and administrative expenses:
Selling expenses:
Direct advertising		123,000			38,000			42,000			43,000
General advertising*		11,000			4,258			2,129			4,613
Sales salaries		154,000			51,000			42,000			61,000
Delivery salaries		36,000			12,000			12,000			12,000
Store rent		206,000			67,000			63,000			76,000
Depreciation of store fixtures		46,010			17,600			8,600			19,810
Depreciation of delivery equipment		27,000			9,000			9,000			9,000
Total selling expenses		603,010			198,858			178,729			225,423
Administrative expenses:
Store management salaries		74,000			24,000			21,000			29,000
General office salaries*		43,000			16,645			8,323			18,032
Utilities		90,600			29,000			32,000			29,600
Insurance on fixtures and inventory		22,500			7,000			8,000			7,500
Employment taxes		36,800			11,700			12,100			13,000
General office expensesother*		23,000			8,903			4,452			9,645
Total administrative expenses		289,900			97,248			85,875			106,777
Total operating expenses		892,910			296,106			264,604			332,200
Net operating income (loss)	$	625,090		$	243,894		$	(20,604	)	$	401,800

*Allocated on the basis of sales dollars.

Management is very concerned about the Downtown Stores inability to show a profit, and consideration is being given to closing the store. The company has asked you to make a recommendation as to what course of action should be taken. The following additional information is available about the store:

a.	The manager of the store has been with the company for many years; he would be retained and transferred to another position in the company if the store were closed. His salary is $7,000 per month, or $21,000 per quarter. If the store were not closed, a new employee would be hired to fill the other position at a salary of $6,000 per month.
b.	The lease on the building housing the Downtown Store can be broken with no penalty.
c.	The fixtures being used in the Downtown Store would be transferred to the other two stores if the Downtown Store were closed.
d.	The companys employment taxes are 11% of salaries.
e.	A single delivery crew serves all three stores. One delivery person could be discharged if the Downtown Store were closed; this persons salary amounts to $7,500 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but it does eventually become obsolete.
f.	One-third of the Downtown Stores insurance relates to its fixtures.
g.	The general office salaries and other expenses relate to the general management of Thrifty Markets, Inc. The employee in the general office who is responsible for the Downtown Store would be discharged if the store were closed. This employees compensation amounts to $10,000 per quarter.

Required:
1.	Prepare a schedule showing the change in revenues and expenses and the impact on the overall company net operating income that would result if the Downtown Store were closed.

2.	Based on your computations in (1) above, what recommendation would you make to the management of Thrifty Markets, Inc.?
	The Downtown Store should not be closed. The Downtown Store should be closed.

3.	Assume that if the Downtown Store were closed, sales in the Uptown Store would increase by $400,000 per quarter due to loyal customers shifting their buying to the Uptown Store. The Uptown Store has ample capacity to handle the increased sales, and its gross margin is 45% of sales.

a.	Calculate the Net advantage of closing the Downtown Store. (Any reductions or outflows should be indicated by a minus sign.)

b.	What recommendation would you make to the management of Thrifty Markets, Inc.?
	The Downtown Store should be closed. The Downtown Store should not be closed.

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