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(Click the icon to view the add-or-drop segments information.) Perez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income
(Click the icon to view the add-or-drop segments information.) Perez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2017 is as follows: (Click to view the operating income for the stores.) Read the requirements More Info - X erating income if it closes the Rhode Island Requirement 1. By closing down the Rhode Isla store. Is Maria Lopez's statement about the effed Begin by calculating Perez's operating income if relevant. If the net effect is an operating loss ent legative amount. Enter a "0" if the cost is not The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Perez Corporation, makes the following comment, "Perez can increase its profitability by closing down the Rhode Island store or by adding another store like it." 1. By closing down the Rhode Island store, Perez can reduce overall corporate overhead costs by $43,000. Calculate Perez's operating income if it closes the Rhode Island store. Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. 2. Calculate Perez's operating income if it keeps the Rhode Island store open and opens another store with revenues and costs identical to the Rhode Island store (including a cost of $18,000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $2,000. Is Maria Lopez's statement about the effect of adding another store like the Rhode Island store correct? Explain. Connecticut Rhode Island Store Store $ 1,090,000 $ 860,000 720,000 89,000 690,000 75,000 Revenues Operating costs Cost of goods sold Lease rent (renewable each year) Labor costs (paid on an hourly basis) Depreciation of equipment Utilities (electricity, heating) Allocated corporate overhead Total operating costs 42,000 43,000 25,000 18,000 40,000 49,000 48,000 39,000 965,000 913,000 $ 125,000 $ (53,000) Operating income (loss)
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