Sarhan Corporation runs two convenience stores, one in Ramallah and one in Bethlehem. Operating income for each store in 2014 is as follows:

Ramallah Store Bethlehem Store

Revenues $1,070,000 $ 860,000

Operating costs:

Cost of goods sold $ 750,000 $ 660,000

Lease rent (renewable each year) 90,000 75,000

Labor costs (paid on an hourly basis) 42,000 42,000

Depreciation of equipment 25,000 22,000

Utilities (electricity, heating) 43,000 46,000

Allocated corporate overhead 50,000 40,000

Total operating costs $1,000,000 $ 885,000

Operating income (loss) $ 70,000 $ (25,000)

The equipment has a zero-disposal value. In a senior management meeting, Mariam, the management accountant at Sarhan Corporation, makes the following comment, Sarhan can increase its profitability by closing down the Bethlehem store or by adding another store like it.

1. By closing down the Bethlehem store, Sarhan Company can reduce overall corporate overhead costs by $44,000. Calculate Sarhans operating income if it closes the Bethlehem store. Is Mariams statement about the effect of closing the Bethlehem store, correct? Explain.

2. Calculate Saarhans operating income if it keeps the Bethlehem store open and opens another store with revenues and costs identical to the Bethlehem store (including a cost of $22,000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $4,000. Is Mariams statement about the effect of adding another store like the Bethlehem store correct? Explain.