Question

Sundry Corporation runs two convenience stores, one in Vancouver and one in Surrey. Operating income for each store in 2014 follows:
The equipment has a remaining useful life of one year and zero disposal price. In a senior management meeting, Maria Lopez, the management accountant at Sundry Corporation, makes the following comment: “Sundry can increase its profitability by closing down the Surrey store or by adding more stores like it.”
REQUIRED
Answer the following questions referring to the preceding data.
1. Calculate Sundry’s operating income if it closes down the Surrey store. By closing down the store, Sundry can reduce overall corporate overhead costs by $44,000. Is Maria Lopez correct? Explain.
2. Calculate Sundry’s operating income if it opens another store with revenues and costs identical to the Surrey store (including a cost of $22,000 to acquire equipment with a one-year useful life and zero disposal price). Opening this store will increase corporate over-head costs by $4,000. Is Maria Lopez correct? Explain.


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  • CreatedJuly 31, 2015
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