Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in center city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the Cornwell store and believes that outlet has been a drag on profits in recent years. The most recent income statement for the Cornwall store follows.

The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is closed, neither total corporate support costs nor operations or costs of the other stores are expected to change. 

Required

What revenues and costs are probably differential for the decision to close the Cornwall Street store? What will be the effect on SAG’s income if the Cornwall Street store is closed? Is there any other information you would like to have before making your recommendation? 

Transcribed Image Text:

SWAIN ATHLETIC GEAR Cornwall Street Store Income Statement For the Year Ending February 28 Sales revenue.. Costs Cost of goods sold Advertising... Store administrative salaries Sales commissions Leases and utilities... Allocated corporate support. Total costs.... Net loss before tax benefit. Tax benefit at 25%. Net loss.... $12,300,000 $ 5,289,000 1,421,000 975,000 1,056,000 2,100,000 1,622,000 $12,463,000 $ (163,000) (40,750) $ (122,250)