Closing and opening stores, fianchez Corporation runs two convenience stores in Regina and $askatoon. Operating income for each store in 2007 follows:

Regina Store Saskatoon Store Revenues $1,177,000 $946,000 Operating costs Cost of goods sold 825,000 726,000 Lease rent (renewable each year) 99,000 82,500 Labour costs (paid hourly) 46,200 46,200 Amortization of equipment 27,500 24,200 Utilities (electricity, heating) 47,300 50,600 Allocated corporate overhead 55,000 44,000 Total operating costs 1,100,000 973,500 Operating income (loss) $ 77,000 $(27,500)
The equipment has a remaining useful life of one year and zero disposal price. 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 Saskatoon store or by adding more stores like it.”
Required Answer the following questions referring to the preceding data.
1. Calculate Sanchez’s operating income ifit closes down the Saskatoon store. By closing down the store, Sanchez can reduce overall corporate overhead costs by $47,300. Is Maria Lopez correct?
2. Calculate Sanchez’s operating income if it opens another store with revenues and costs identical to the Saskatoon store (including a cost of $24,200 to acquire equipment with a _one-year useful life and zero disposal price). Opening this store will increase corporate j overhead costs by $4,400. Is Maria Lopez correct?