Rivera Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2017 is as follows:

(See the below picture for operating income for the stores.)

The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Rivera Corporation, makes the following comment, "Rivera can increase its profitability by closing down the Rhode Island store or by adding another store like it." Two requirements are given below

1. By closing down the Rhode Island store, Rivera can reduce overall corporate overhead costs by $46000. Calculate Rivera'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 Rivera'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 $24000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $6000. Is Maria Lopez's statement about the effect of adding another store like the Rhode Island store correct? Explain.

Requirement 1 Solution. By closing down the Rhode Island store, Rivera can reduce overall corporate overhead costs by $ 46000. Calculate Rivera'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.

By closing down the Rhode Island store, can reduce overall corporate overhead costs by $46000. Calculate operating income if it closes the Rhode Island store. Is Mario Lopez statement about the effect of closing the Rhode Island store correct? Explain. (Complete all answer boxes. Enter losses in revenues as a negative amount. Enter a "0" if the cost is not relevant. If the net effect is an operating loss enter the amount with parentheses or a minus sign.)

Requirement 2 Solution?

Connecticut Store Rhode Island Store $ 1,130,000 $ 820,000 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 700,000 91,000 40,000 26,000 38,000 51,000 620,000 78,000 40,000 24,000 42,000 43,000 946,000 847,000 184,000 $ (27,000) Operating income (loss) Requirement 1. By closing down the Rhode Island store, Rivera can reduce overall corporate overhead costs by $46,000. Calculate Rivera'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. Begin by calculating Rivera's operating income if it closes the Rhode Island store. (Complete all answer boxes. Enter losses in revenues as a negative amount. Enter a "0" if the cost is not relevant. If the net effect is an operating loss enter the amount with parentheses or a minus sign.) (Loss in Revenues) Savings in Costs 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) Corporate overhead Total operating costs Effect on operating income (loss)