Question

	Minneapolis	New York Store
revenues	1100000	850,000
Operating costs
COGS	700,000	690000
Lease rent	88000	73000
labor costs	43000	43000
depreciation	29000	23000
utilities	48000	48000
allocated corp overhead	48000	36000
total op costs	956000	913000
operating income	144000	-63000

Nunez Corporation runs two convenience​ stores, one in Minneapolis and one in New York. Operating income for each store in 2013 is as​ follows: Minneapolis Revenues 1100000 Ope costs COGS 700,000 Lease rent 88,000 Labor costs 43,000 depreciation 29,000 utilities 48,000 allocated corp overhead 48,000 total op cost 956000 operating income 144,000 New York store revenues 850,000 op costs cogs 690000 lease rent 73000 labor costs 43,000 depreciation 23000 utilities 48000 allocated corp overhead 36000 total op cost 913000 operating income -$63000 By closing down the New York, Nunez can reduce overall corporate overhead costs by $43,000. Calculate Nunez's operating income if it closes the New YorkNew York store. Is Evan SmithEvan Smith​'s statement about the effect of closing the New York store​ correct? Explain.

Answer 1

Solution:

Computation of Operating Income - Nunez Corporation
After closing New york store
Particulars	Amount
Revenues	$1,100,000.00
Operating costs:
COGS	$700,000.00
Lease Rent	$88,000.00
Labor cost	$43,000.00
Depreciation	$29,000.00
Utilities	$48,000.00
Corporate overhead ($48,000 + $36,000 - $43,000)	$41,000.00
Total operating costs	$949,000.00
Operating income	$151,000.00

As overall operating income is increasing, therefore Evan Smith​'s statement about the effect of closing the New York store​ correct