Blossom has been operating two profitable restaurants in Vancouver and Toronto for several years. A year ago, Blossom expanded its business to Montreal, and the Montreal restaurant has been suffering loss since its opening. The annual income statement for last year for the three restaurants is as follows: Revenue Cost of Food Rent (renewal yearly) Utilities Labour costs (paid hourly) Allocated corporate overhead Total Costs Operating income (loss) Vancouver Toronto $1,189,000 $1,783,000 $479,000 $728,000 132,000 179,000 72,000 89,000 198,000 383,000 158,000 158,000 $1,039,000 $1,537,000 $150,000 $246,000 Montreal $806,000 $357,000 141,000 85,000 186,000 158,000 $927,000 $(121,000 Total $3,778,000 $1,564,000 452,000 246,000 767,000 474,000 $3,503,000 $275,000 A big portion of the corporate overhead is related to marketing and advertisement. The total overhead costs doubled when French was added to the marketing and advertisement. The corporate overhead costs were evenly allocated to three locations, when the Montreal restaurant was newly added a year ago. Mr. Yamamoto, the owner of Blossom, is considering his options. The first option is to close down the Montreal restaurant. The second option is to keep the Montreal restaurant and open another restaurant of similar size to the operation of the Montreal restaurant in French language region, such as Moncton, New Brunswick. Analyze option 1: Closing the Montreal restaurant independently. By closing down the Montreal restaurant, the total corporate overhead will be reduced by half to the previous level. Should Blossom close the restaurant in Montreal? Net of closing the Montreal restaurant Blossom close the Montreal restaurant. Analyze option 2: Opening the Moncton restaurant independently. By adding new restaurant in Moncton, the financial information is similar to the Montreal restaurant, except the cost of food will be $302,650, due to the volume discount and the rent in Moncton will be $104,340 annually. Blossom does not expect to incur additional corporate overhead and the total corporate overhead costs will be evenly allocated to four restaurants. Should Blossom open a restaurant in Moncton? Net of opening the Moncton restaurant Blossom open the Moncton restaurant

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