Irving Corporation runs two stores, one in Medfield and one in Oakland. Operating income for each store in 2017 is as follows: Table shows the revenues, various operating costs, and operating income of Irving Corporation’s two stores, in Medfield and Oakland in the year 2017. The details of Medfield store are as follows: a. Revenues: $2,100,000 b. Operating costs • Cost of goods sold: $1,500,000 • Variable operating costs for labor and utilities: $180,000 • Lease rent renewable each year: $160,000 • Depreciation of equipment: $50,000 • Allocated corporate overhead: $90,000 • Total operating costs: $1,980,000 c. Operating income which is a loss: $120,000 The details of Oakland store are as follows: a. Revenues: $1,700,000 b. Operating costs • Cost of goods sold: $1,310,000 • Variable operating costs for labor and utilities: $170,000 • Lease rent renewable each year: $155,000 • Depreciation of equipment: $40,000 • Allocated corporate overhead: $75,000 • Total operating costs: $1,750,000 c. Operating income which is a loss: $50,000 within parentheses Medfield Store Oakland Store Revenues $2,100,000 $1,700,000 Operating costs Cost of goods sold 1,500,000 1,310,000 Variable operating costs (labor, utilities) 180,000 170,000 Lease rent (renewable each year) 160,000 155,000 Depreciation of equipment 50,000 40,000 Allocated corporate overhead 90,000 75,000 Total operating costs 1,980,000 1,750,000 Operating income (loss) $ 120,000 $ (50,000) The equipment has zero disposal value. By closing down the Oakland store, Irving can reduce overall corporate overhead costs by $85,000. Should Irving Corporation close down the Oakland store? Instead of closing down the Oakland store, Irving Corporation is thinking of opening another store with revenues and costs identical to the Oakland store (including a cost of $40,000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $10,000. Should Irving Corporation open another store like the Oakland store? Explain.
Irving Corporation runs two stores, one in Medfield and one in Oakland. Operating income for each store in 2017 is as follows:
Table shows the revenues, various operating costs, and operating income of Irving Corporation’s two stores, in Medfield and Oakland in the year 2017.
The details of Medfield store are as follows:
a. Revenues: $2,100,000
b. Operating costs
• Cost of goods sold: $1,500,000
• Variable operating costs for labor and utilities: $180,000
• Lease rent renewable each year: $160,000
•
• Allocated corporate
• Total operating costs: $1,980,000
c. Operating income which is a loss: $120,000
The details of Oakland store are as follows:
a. Revenues: $1,700,000
b. Operating costs
• Cost of goods sold: $1,310,000
• Variable operating costs for labor and utilities: $170,000
• Lease rent renewable each year: $155,000
• Depreciation of equipment: $40,000
• Allocated corporate overhead: $75,000
• Total operating costs: $1,750,000
c. Operating income which is a loss: $50,000 within parentheses
Medfield Store Oakland Store
Revenues $2,100,000 $1,700,000
Operating costs
Cost of goods sold 1,500,000 1,310,000
Variable operating costs (labor, utilities) 180,000 170,000
Lease rent (renewable each year) 160,000 155,000
Depreciation of equipment 50,000 40,000
Allocated corporate overhead 90,000 75,000
Total operating costs 1,980,000 1,750,000
Operating income (loss) $ 120,000 $ (50,000)
The equipment has zero disposal value.
By closing down the Oakland store, Irving can reduce overall corporate overhead costs by $85,000. Should Irving Corporation close down the Oakland store?
Instead of closing down the Oakland store, Irving Corporation is thinking of opening another store with revenues and costs identical to the Oakland store (including a cost of $40,000 to acquire equipment with a one-year useful life and zero disposal value). Opening this store will increase corporate overhead costs by $10,000. Should Irving Corporation open another store like the Oakland store? Explain.
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