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Requirement 2. Instead of closing down the Oakland store, Camp Corporation is thinking of opening another store with revenues and costs identical to the Oakland
Requirement 2. Instead of closing down the Oakland store, Camp Corporation is thinking of opening another store with revenues and costs identical to the Oakland store (including a cost of $47,000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $12,000. Should Camp Corporation open another store like the Oakland store? Explain. Begin by calculating Camp's operating income if it keeps the Oakland store open and opens another store with revenues and costs identical to the Oakland store. (If the net effect is an operating loss, enter the amount with parentheses or a minus sign.) Incremental Revenues (Incremental Costs) of Opening New Store Like Oakland Store 1,500,000 Revenues Operating costs Cost of goods sold Variable operating costs (labor, utilities) Lease rent (renewable each year) Depreciation of equipment Allocated corporate overhead Total operating costs (1,240,000) (135,000) (164,000) (47,000) (12,000) Effect on operating income (loss) Medfield Store 2,350,000 Oakland Store 1,500,000 $ Revenues 1,350,000 140,000 1,240,000 135,000 140,000 164,000 Operating costs Cost of goods sold Variable operating costs (labor, utilities) Lease rent (renewable each year) Depreciation of equipment Allocated corporate overhead Total operating costs Operating income (loss) 49,000 87,000 41,500 78,000 1,766,000 1,658,500 (158,500) 584,000
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