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Sushime has been operating a profitable restaurant in Toronto for several years. A year ago, Sushime expanded its business to Montreal, and the Montreal restaurant
Sushime has been operating a profitable restaurant in Toronto for several years. A year ago, Sushime expanded its business to Montreal, and the Montreal restaurant has been suffering losses since its opening. The annual income statement for last year for the two restaurants is as follows. Toronto Montreal Total $ 1,800,000 $ 800,000 $2,600,000 Revenue Cost of Food Rent (renewed yearly) Utilities (treat as a fixed cost) Labor costs (paid hourly) Allocated corporate overhead Total Costs 720,000 180,000 90,000 380,000 160,000 1,530,000 360,000 140,000 85,000 185,000 160,000 930,000 1,080,000 320,000 175,000 565,000 320,000 2,460,000 Operating income (loss) $ 270,000 $130,000) $ 140,000 A big portion of the corporate overhead is related to marketing and advertisement. The total overhead costs increased by $100,000 when the Montreal restaurant was opened due to the (continual) need to create appropriate French language marketing and advertisement materials. Corporate overhead costs were evenly allocated to the two locations. Mr. Yamamoto, the owner of Sushime, is considering whether to close the Montreal restaurant and operate the Toronto location only. Required: Based on preparing a properly formatted segmented report that includes the contribution margin, determine by how much better or worse off company operating income will be if the Montreal location is closed
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