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.