10.25 Closing and opening stores Objective 7 Thompson Ltd runs two convenience stores, one in Ballarat and one in Bendigo. Operating profit for each store in 2017 is as follows: Ballarat store Bendigo store $ 860 000 $1 070 000 Revenues Operating costs Cost of goods sold 660 000 750 000 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) 46 000 43 000 50 000 40 000 Allocated corporate overhead 1000 000 885 000 Total operating costs $(25 000) $70 000 Operating profit (loss) The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Thompson Ltd, makes the following comment, 'Thompson can increase its profitability by closing down the Bendigo store or by adding another store like it." Required 1. By closing down the Bendigo store, Thompson can reduce overall corporate overhead costs by $44 000. Calculate Thompson's operating profit if it closes the Bendigo store. Is Maria Lopez's statement about the effect of closing the Bendigo store correct? Explain 2. Calculate Thompson's operating profit if it keeps the Bendigo store open and opens another store with revenues and costs identical to the Bendigo store (including a cost of $22 000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $4000. Is Maria Lopez's statement about the effect of adding another store like the Bendigo store correct? Explain