SantiegoSantiego

Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2014

is as follows:

Connecticut Store

Rhode Island Store

Revenues

$1,100,000

$890,000

Operating costs

Cost of goods sold

790,000

660,000

Lease rent (renewable each year)

86,000

80,000

Labor costs (paid on an hourly basis)

44,000

45,000

Depreciation of equipment

25,000

18,000

Utilities (electricity, heating)

40,000

48,000

Allocated corporate overhead

51,000

44,000

Total operating costs

1,036,000

895,000

Operating income (loss)

$64,000

$(5,000)

(Click to view the operating income for the stores.)The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at

SantiegoSantiego

Corporation, makes the following comment,

"SantiegoSantiego

can increase its profitability by closing down the Rhode Island store." Is Maria Lopez Correct?Read the requirements

LOADING...

.

Requirement 1. By closing down the Rhode Island store,

SantiegoSantiego

can reduce overall corporate overhead costs by

$51,000.

Calculate

SantiegoSantiego'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

SantiegoSantiego's

operating income if it closes the Rhode Island store. (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)

Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain.

Lopez is

that

SantiegoSantiego

Corporation's operating income would increase if it closes down the Rhode Island store as shown by the analysis above.