Smith Corporation runs two convenience stores, one in Chicago and one in Denver. Operating income for...

 

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Smith Corporation runs two convenience stores, one in Chicago and one in Denver. Operating income for each store in 2017 is as follows. Each store faces different competitive challenges. In a senior management meeting you make the following statement, "we face three options: a) do nothing and keep both stores open, b) close the Denver store and keep the Chicago store, or c) keep Chicago and Denver open, and open a new store in Cleveland." Your statement is based on an analysis where equipment has a zero disposal value and leased on an annual contract. A further estimate is that sales, product mix and variable cost in Cleveland and Denver will be approximately the same for the foreseeable future. Allocated corporate cost will not change by closing the Denver store and will increase by $4,000 with the Cleveland store. In an effort to add value to the company you prepare three store segment reports and recommend a decision based on total profits. Requirement: Circle your decision: A: Do nothing B: Close the Denver Store C: Expand to Cleveland Prepare three reports in proper formant on separate sheets showing the three options, supporting your decision assuming profit maximization is your basis in making the above statement. Revenue Operating expenses Chicago Denver $ 1,070,000 $ 860,000 Cost of goods sold (all variable) 750,000 660,000 Store security system (contract, avoidable) 90,000 75,000 NC Labor costs (paid on an hourly basis) 42,000 42,000 Equipment lease (contract, avoidable) 25,000 22,000 Utilities (heating, cooling, all variable) 43,000 46,000 Allocated corporate overhead 50,000 40,000 Total operating expenses 1,000,000 885,000 Operating income (loss) $ 70,000 $ (25,000) Smith Corporation runs two convenience stores, one in Chicago and one in Denver. Operating income for each store in 2017 is as follows. Each store faces different competitive challenges. In a senior management meeting you make the following statement, "we face three options: a) do nothing and keep both stores open, b) close the Denver store and keep the Chicago store, or c) keep Chicago and Denver open, and open a new store in Cleveland." Your statement is based on an analysis where equipment has a zero disposal value and leased on an annual contract. A further estimate is that sales, product mix and variable cost in Cleveland and Denver will be approximately the same for the foreseeable future. Allocated corporate cost will not change by closing the Denver store and will increase by $4,000 with the Cleveland store. In an effort to add value to the company you prepare three store segment reports and recommend a decision based on total profits. Requirement: Circle your decision: A: Do nothing B: Close the Denver Store C: Expand to Cleveland Prepare three reports in proper formant on separate sheets showing the three options, supporting your decision assuming profit maximization is your basis in making the above statement. Revenue Operating expenses Chicago Denver $ 1,070,000 $ 860,000 Cost of goods sold (all variable) 750,000 660,000 Store security system (contract, avoidable) 90,000 75,000 NC Labor costs (paid on an hourly basis) 42,000 42,000 Equipment lease (contract, avoidable) 25,000 22,000 Utilities (heating, cooling, all variable) 43,000 46,000 Allocated corporate overhead 50,000 40,000 Total operating expenses 1,000,000 885,000 Operating income (loss) $ 70,000 $ (25,000)