You have the following income statements for each of the four quarters of a restaurant operation:

The owner is contemplating closing the restaurant in the fourth quarter in order to eliminate the loss and take a three-month vacation. The owner has asked for your help, and after an analysis of the fourth-quarter expenses, you determine the following:
Wages: $3,000 is a fixed cost of key personnel who would be kept on the payroll even if the operation were closed for three months.
Supplies: Cost varies directly with sales revenue; none of the supplies costs are fixed.
Advertising: Half of the cost is fixed, the rest is variable.
Utilities: Even if closed for three months, the restaurant will still require some heating; this is expected to cost $100 a month.
Maintenance: Some light maintenance work could be done during the closed period; estimated cost $100.
Insurance: Insurance cost will be reduced $200 if closed for three months.
Interest: Will still have to be paid, even if closed.

Depreciation: With less customer traffic and reduced wear and tear on equipment, there would be a 75 percent reduction in depreciation expense for the fourth quarter.
Rent: This is an annual expense of $12,000 that must be paid regardless of whether the restaurant is open or closed.
Explain what advice you would give the owner.

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1st Qtr. Sales revenue Cost of sales Gross Margin 2nd Qtr. 3rd Qtr. $34,200 $44,800 $37,200 $20,300 (12,800) (16,900) (14,700) ( 8,400) $21,400 $27,900 $22,500 $11,900 4th Qtr. Operating Expenses Wages $ 9,800 $11,600 $10,200 $ 7,400 Supplies 1,600 1,900 1,700 900 Advertising Utilities Maintenance Insurance Interest Depreciation Rent 600 800 700 400 2,500 2,900 2,600 1,900 300 400 300 200 500 500 500 500 600 600 600 600 400 400 400 400 3,000 3,000 3,000 3,000 Total expenses $19,300 $22,100 $20,000 $15,300 Operating income (loss) $2,100 $5,800 $ 2,500 ($ 3,400)