Reference no: EM13812672 , Length:

Closing a Division

Papa Friedo's Pizza store no. 16 has fallen on hard times and is about to be closed. The following figures are available for the period just ended:

Sales                                              $205,000

Cost of sales                                      67,900

Building occupancy costs:

Rent                                            36,500

Utilities                                        15,000

Supplies used                                     5,600

Wages                                               77,700

Miscellaneous                                     2,400

Allocated corporate overhead        16,800

All employees except the store manager would be discharged. The manager, who earns $27,000 annually, would be transferred to store no. 19 in a neighboring suburb. Additionally, no. 16's furnishings and equipment are fully depreciated and would be removed and transported to Papa Friedo's warehouse at a cost of $2,800.

Required:

A. What is store no. 16's reported loss for the period just ended?

B. Should the store be closed? Why?

C. Would Papa Friedo's likely lose all $205,000 of sales revenue if store no. 16 were closed? Explain.