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

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

Sanchez Corporation runs two convenience stores, one in Connecticut and

The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Sanchez Corporation, makes the following comment, "Sanchez can increase its profitability by closing down the Rhode Island store or by adding another store like it."
Required
1. By closing down the Rhode Island store, Sanchez can reduce overall corporate overhead costs by $44,000. Calculate Sanchez'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 Sanchez'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 $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 Maria Lopez's statement about the effect of adding another store like the Rhode Island store correct? Explain.

Corporation
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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Horngrens Cost Accounting A Managerial Emphasis

ISBN: 978-0134475585

16th edition

Authors: Srikant M. Datar, Madhav V. Rajan

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