Gopher Gulch Corp. is a little two-store retailer operating in a local market.Its problem is that one store in the company is losing money while the other one is making money, based on company financial reports, causing the company as a whole to lose money. The most recent income statement for Gopher Gulch Corp. is given below:

Store 1Store 2Total

Sales$976,000$1,145,000$2,121,000

Variable costs(593,000)(685,000)(1,278,000)

Contribution margin383,000460,000843,000

Traceable fixed costs(470,000)(269,000)(739,000)

Store segment margin( 87,000)191,000104,000

Common fixed costs(116,000)(85,000)(201,000)

Net operating income (loss)$(203,000)$106,000$ (97,000)

Because of its poor showing, Gopher Gulch Corp. officials are considering closing Store 1. However, management and the workers at Store 1 say, "Not so fast!"A study by a consultant hired by Gopher Gulch Corp. officials show that if Store 1 is closed, 39 percent of its traceable fixed costs will continue unchanged. The study also shows that closing Store 1 would result in a 28 percent decrease in sales in Store 2. The company allocates common fixed costs, such as your corporate officials' salaries and advertising costs, to the stores on the basis of square footage of the stores. Management and workers at Store 1 claim that Store 1 is being unfairly targeted for closure.

Your uncle, the CEO of Gopher Gulch Corp., knows that you are a student in the prestigious Delta State University Integrated Master of Business Administration (IMBA) Program, and so has turned to you for advice on what to do.

Required

Compute Gopher Gulch Corp's total net operating income (loss) if Store 1 is closed. (Hint:The answer will entail determining the lost contribution margins for Store 1 and Store 2 offset by the amount of fixed costs shed by closing Store 1.Pay close attention to the percentages listed above.)