=+8-25 KK Closing and opening stores OBJECTIVE 6 Greene Ltd runs two convenience stores, one in Canberra and one in Queanbeyan. Operating profit for each store in 2014 is as follows:

Canberra store Queanbeyan store Revenues $1 070 000 $860 000 Operating costs Cost of goods sold 750 000 660 000 Lease rent (renewable each year) 90 000 75 000 Labour costs (paid on an hourly basis) 42 000 42 000 Depreciation of equipment 25 000 22 000 Utilities (electricity, heating) 43 000 46 000 Allocated corporate overhead 50 000 40 000 Total operating costs 1 000 000 885 000 Operating profit (loss) $70 000 $(25 000)

The equipment has a zero disposal value. In a senior management meeting, Nicole Preston, the management accountant at Greene Ltd, makes the following comment: ‘Greene can increase its profitability by closing down the Queanbeyan store or by adding another store like it.’

Required 1 By closing down the Queanbeyan store, Greene Ltd can reduce overall corporate overhead costs by $44000. Calculate Greene Ltd’s operating profit if it closes the Queanbeyan store. Is Nicole Preston’s statement about the effect of closing the Queanbeyan store correct? Explain.