Math  /  Data & Statistics

Question11-30 Closing and opening stores. Sanchez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2017 is as follows: \begin{tabular}{|c|c|c|} \hline & Connecticut Store & Rhode Island Store \\ \hline Revenues & \1,070,000 & \$860,000 \\ \hline \multicolumn{3}{|l|}{Operating costs} \\ \hline Cost of goods sold & 750,000 & 660,000 \\ \hline Lease rent (renewable each year) & 90,000 & 75,000 \\ \hline Labor costs (paid on an hourly basis) & 42,000 & 42,000 \\ \hline Depreciation of equipment & 25,000 & 22,000 \\ \hline Utilities (electricity, heating) & 43,000 & 46,000 \\ \hline Allocated corporate overhead & 50,000 & 40,000 \\ \hline Total operating costs & 1,000,000 & 885,000 \\ \hline Operating income (loss) & \$ 70,000 & \$ (25,000)$ \\ \hline \end{tabular}
The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Sanchez Corporation, makes the following comment, "Sanchez can increase its profitability by closing down the Rhode Island store or by adding another store like it."
1. By closing down the Rhode Island store, Sanchez can reduce overall corporate overhead costs by $44,000\$ 44,000. Calculate Sanchez's operating income if it closes the Rhode Island store. Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain.
2. Calculate Sanchez's operating income if it keeps the Rhode Island store open and opens another store with revenues and costs identical to the Rhode Island store (including a cost of $22,000\$ 22,000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $4,000\$ 4,000. Is Maria Lopez's statement about the effect of adding another store like the Rhode Island store correct? Explain.

Studdy Solution
تحقق من صحة بيان ماريا لوبيز:
بيان ماريا لوبيز غير صحيح لأن فتح متجر جديد مثل متجر رود آيلاند يقلل من الدخل التشغيلي إلى \$16,000.
الحل النهائي:
1. إغلاق متجر رود آيلاند يزيد الدخل التشغيلي إلى \$89,000.
2. فتح متجر جديد مثل متجر رود آيلاند يقلل الدخل التشغيلي إلى \$16,000.

View Full Solution - Free
Was this helpful?

Studdy solves anything!

banner

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

ParentsInfluencer programContactPolicyTerms
TwitterInstagramFacebookTikTokDiscord