Question

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.

Answer 1

A. Net reported loss for the period end is -$16,900.

Papa Friedo's Pizza Store no. 16
Income statement
For the period ended
Sales	205000
Cost of Sales	-67900
Gross profit (i)	137100
Expenses:
Rent	36500
Utilities	15000
Supplies Used	5600
Wages	77700
Miscellaneous	2400
Overhead	16800
Total expenses (ii)	154000
Net Loss (i) - (ii)	-16900

B. No, If the store no. 16 closed, Papa Friedo's will get additional cost of $ 29,800. It is more than the net reported loss.

Manager's Salary	27000
Transportation cost	2800
Total Additional cost	29800

C. No,

  Papa Friedo's may not lose all $205,000 of sales revenue if store no. 16 were closed because there is a Store no. 19 neighboring suburb, Revenue of the store no. 19 may be increased.