Ortiz Market $($OM$)$ runs two convenience stores, one in Vancouver and one in Surrey. Operating income for each store in the year follows:

View the operating income for the stores.

following comment, $"$OM can increase its profitability by closing down the Surrey store or by adding more stores like it$."$

Incremental Revenue and

Savings in Costs from

Closing Surrey Store

Revenues

Operating costs:

Cost of goods sold

Lease rent $($renewable each year$)$

Labour costs $($paid on an hourly

basis$)$

Depreciation of equipment

Utilities $($electricity$,$ heating$)$

Corporate overhead

Total operating costs

Effect on operating income $($loss$)$

Required

Answer the following questions referring to the data provided.

Calculate OM's operating income if it closes down the Surrey store. By closing down

the store, OM can reduce overall corporate overhead costs by $$56,000.$ Is Maria

Lopez correct? Explain.

Calculate OM's operating income if it opens another store with revenues and costs

identical to those of the Surrey store $($including a cost of $$19,000$ to acquire equipment

with a one$-$year useful life and zero disposal price$).$ Opening this store will increase

corporate overhead costs by $$6,000.$ Is Maria Lopez correct? Explain.

Store Operating Income