Sushime has been operating two profitable restaurants in Vancouver and Toronto for several years. A year ago, Sushime expanded its business to Montreal, and the Montreal restaurant has been suffering losses since its opening. The annual income statement for last year for the three restaurants is as follows:

A big portion of the corporate overhead is related to marketing and advertisement. The total overhead costs doubled when French was added to the marketing and advertisement materials. The corporate overhead costs were evenly allocated to three locations, when the Montreal restaurant was newly added a year ago.

Mr. Yamamoto, the owner of Sushime, is considering his options. The fi rst option is to close down the Montreal restaurant. The second option is to keep the Montreal restaurant and open another restaurant of similar size to the operation of the Montreal restaurant in a French-language or bilingual location, such as Moncton, New Brunswick.

REQUIRED

A. Analyze option 1: Closing the Montreal restaurant independently. By closing down the Montreal restaurant, the total corporate overhead will be reduced by half to the previous level. Should Sushime close the restaurant in Montreal? Show your calculations to support your answer.
B. Analyze option 2: Opening the Moncton restaurant independently. By adding a new restaurant in Moncton, the fi nancial information is similar to the Montreal restaurant, except the cost of food will be $300,000, due to the volume discount, and the rent in Moncton will be $100,000 annually. Sushime does not expect to incur additional corporate overhead and the total corporate overhead costs will be evenly allocated to four restaurants. Should Sushime open a restaurant in Moncton? Show your calculations to support your answer.

C. Which option should Mr. Yamamoto take? What are the non-fi nancial factors he should consider?

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Total Vancouver Toronto $1,800,000 $ 720,000 180,000 90,000 380,000 160,000 $1,530,000 $ 270,000 Montreal Revenue Cost of food Rent (renewal yearly) Utilities Labour costs (paid hourly) Allocated corporate overhead Total costs Operating income (loss) $3,800,000 $1,560,000 452,000 247,000 765,000 480,000 $3,504,000 $ 296,000 $1,200,000 $ 480,000 132,000 72,000 200,000 160,000 $ 800,000 $ 360,000 140,000 85,000 185,000 160,000 $ 930,000 $1,044,000 $ 156,000 $(130,000)