Nunez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2014 is as follows: E (Click to view the operating income for the stores.) The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Nunez Corporation, makes the following comment, "Nunez can increase its profitability by closing down the Rhode Island store." Is Maria Lopez Correct? Read the requirements. Requirement 1. By closing down the Rhode Island store, Nunez can reduce overall corporate overhead costs by $45,000. Calculate Nunez's operating income if it closes the Rhode Island store. Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. Begin by calculating Nunez's operating income if it closes the Rhode Island store. (Enter losses in revenues as a negative amount. Enter a "0" if the cost is O Data Table (Loss in Revenues) Savings in Costs Revenues Connecticut Store Rhode Island Store Operating costs 2$ 1,100,000 $ 840,000 Revenues Cost of goods sold Operating costs Lease rent (renewable each year) Cost of goods sold 780,000 640,000 Labor costs (paid on an hourly basis) Lease rent (renewable each year) 89,000 78,000 Depreciation of equipment Labor costs (paid on an hourly basis) 50,000 38,000 Utilities (electricity, heating) Depreciation of equipment 23,000 22,000 Corporate overhead Utilities (electricity, heating) 43,000 50,000 Total operating costs 50,000 38,000 Allocated corporate overhead Effect on operating income (loss) 1,035,000 866,000 Total operating costs Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. 65,000 S (26,000) Operating income (loss) Lopez is V that Nunez Corporation's operating income would increase if it closes down the Rhode Island store as shown by the analysis above. Print Done
Nunez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2014 is as follows: E (Click to view the operating income for the stores.) The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Nunez Corporation, makes the following comment, "Nunez can increase its profitability by closing down the Rhode Island store." Is Maria Lopez Correct? Read the requirements. Requirement 1. By closing down the Rhode Island store, Nunez can reduce overall corporate overhead costs by $45,000. Calculate Nunez's operating income if it closes the Rhode Island store. Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. Begin by calculating Nunez's operating income if it closes the Rhode Island store. (Enter losses in revenues as a negative amount. Enter a "0" if the cost is O Data Table (Loss in Revenues) Savings in Costs Revenues Connecticut Store Rhode Island Store Operating costs 2$ 1,100,000 $ 840,000 Revenues Cost of goods sold Operating costs Lease rent (renewable each year) Cost of goods sold 780,000 640,000 Labor costs (paid on an hourly basis) Lease rent (renewable each year) 89,000 78,000 Depreciation of equipment Labor costs (paid on an hourly basis) 50,000 38,000 Utilities (electricity, heating) Depreciation of equipment 23,000 22,000 Corporate overhead Utilities (electricity, heating) 43,000 50,000 Total operating costs 50,000 38,000 Allocated corporate overhead Effect on operating income (loss) 1,035,000 866,000 Total operating costs Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain. 65,000 S (26,000) Operating income (loss) Lopez is V that Nunez Corporation's operating income would increase if it closes down the Rhode Island store as shown by the analysis above. Print Done
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter10: Forecasting Financial Statement
Section: Chapter Questions
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Transcribed Image Text:Nunez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2014 is as follows:
(Click to view the operating income for the stores.)
The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management accountant at Nunez Corporation, makes the following comment, "Nunez can increase its profitability by closing down the Rhode Island store." Is
Maria Lopez Correct?
Read the requirements.
Requirement 1. By closing down the Rhode Island store, Nunez can reduce overall corporate overhead costs by $45,000. Calculate Nunez'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.
Begin by calculating Nunez's operating income if it closes the Rhode Island store. (Enter losses in revenues as a negative amount. Enter a "0" if the cost is
Data Table
(Loss in Revenues)
Savings in Costs
Revenues
Connecticut Store
Rhode Island Store
Operating costs
$
1,100,000 $
840,000
Revenues
Cost of goods sold
Operating costs
Lease rent (renewable each year)
Cost of goods sold
780,000
640,000
Labor costs (paid on an hourly basis)
Lease rent (renewable each year)
89,000
78,000
Depreciation of equipment
Labor costs (paid on an hourly basis)
50,000
38,000
Utilities (electricity, heating)
Depreciation of equipment
23,000
22,000
Corporate overhead
Utilities (electricity, heating)
43,000
50,000
Total operating costs
50,000
38,000
Allocated corporate overhead
Effect on operating income (loss)
1,035,000
866,000
Total operating costs
Is Maria Lopez's statement about the effect of closing the Rhode Island store correct? Explain.
2$
65,000 $
(26,000)
Operating income (loss)
Lopez is
that Nunez Corporation's operating income would increase if it closes down the Rhode Island store as shown by the analysis above.
Print
Done
Entor c ny punmber in the od+ fiolde ond then oontinue to the noxt auestion
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