GST Corporation runs two convenience stores, one in Minneapolis and one in St. Paul. Operating income for
Question:
The equipment has a zero disposal value. In a senior management meeting, Sven Larsen, management accoun-tant at GST Corporation, comments: GST can increase its profitability by closing down the St. Paul store or by adding another store like it.
Required
1. By closing down the St. Paul store, GST can reduce overall corporate overhead costs by $ 88,000. Calculate GSTs operating income if it closes the St. Paul store. Is Sven Larsens statement about the effect of closing the St. Paul store correct? Explain.
2. Calculate GSTs operating income if it keeps the St. Paul store open and opens another store with revenues and costs identical to the St. Paul store (including a cost of $ 44,000 to acquire equipment with a 1- year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $ 8,000. Is Sven Larsens statement about the effect of adding another store like the St. Paul store correct?Explain.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Managerial Accounting Decision Making and Motivating Performance
ISBN: 978-0137024872
1st edition
Authors: Srikant M. Datar, Madhav V. Rajan