Your Market {YM} runs two convenience stores, one in Vancouver and one in Surrey. Operating income for each store in 2018 follows:

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 Your Market, makes the following comment:

"YM can increase its profitability by closing down the Surrey store or by adding more stores like it."

Required

Answer the following questions referring to the preceding data.

1. Calculate YM's operating income if it closes down the Surrey store. By closing down the store, YM can reduce overall corporate overhead costs by $44,000. Is Maria Lopez correct? Explain.

2. Calculate YM's operating income if it opens another store with revenues and costs identical to the Surrey store (including a cost of $22,000to acquire equipment with a one-year useful life and zero disposal price). Opening this store will increase corporate overhead costs by $4,000. Is Maria Lopez correct? Explain.

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Vancouver Surrey $ 860,000 Revenues $1,070,000 Operating costs: Cost of goods sold 750,000 660,000 Lease rent (renewable each year) 75,000 90,000 Labour (paid on an hourly basis) 42,000 42,000 Depreciation of equipment 22,000 25,000 Utilities (electricity, heating) 43,000 46,000 Allocated corporate overhead 50,000 30,000 875,000 S(15,000) Total operating costs 1,000,000 $ 70,000 Operating income (loss)