# Operating Income Analysis for Martinez CorporationMartinez Corporation operates two convenience stores: one in Connecticut and one in Rhode Island. The operating income for each store in 2017 is provided. This analysis explores the impact of closing the Rhode Island store on overall operating income.## RequirementBy closing the Rhode Island store, Martinez can reduce overall corporate overhead costs by $41,000. The task is to calculate the operating income if the Rhode Island store is closed and to evaluate Maria Lopez's statement regarding this closure.## Financial Data### Revenues and Operating Costs#### Connecticut Store- **Revenues:** $1,040,000- **Operating Costs:** - Cost of goods sold: $760,000 - Lease rent: $88,000 - Labor costs: $48,000 - Depreciation of equipment: $27,000 - Utilities: $44,000 - Allocated corporate overhead: $46,000 - **Total Operating Costs:** $1,013,000- **Operating Income:** $27,000#### Rhode Island Store- **Revenues:** $820,000- **Operating Costs:** - Cost of goods sold: $620,000 - Lease rent: $75,000 - Labor costs: $37,000 - Depreciation of equipment: $18,000 - Utilities: $52,000 - Allocated corporate overhead: $38,000 - **Total Operating Costs:** $840,000- **Operating Loss:** ($20,000)## Analysis- Calculate the potential savings by eliminating costs from the Rhode Island store.- Consider the reduction in corporate overhead by $41,000. **Effect on Operating Income (Loss):**- Determine the net effect on operating income by closing the Rhode Island store, factoring in reduced overhead and loss in revenues.This analysis aims to inform strategic decisions regarding the potential closure of an underperforming location and its financial implications. **Martinez Corporation Case Study****Operating Income Overview**Martinez Corporation operates two convenience stores, one located in Connecticut and another in Rhode Island. The operating income for each store in 2017 can be accessed by clicking the available link.**More Info**In a meeting, Maria Lopez, the management accountant at Martinez Corporation, stated: "Martinez can increase its profitability by closing down the Rhode Island store or by adding another store like it." Notably, the equipment in question has a zero disposal value.**Requirements**1. **Closing the Rhode Island Store:** - Closing the Rhode Island store could reduce overall corporate overhead costs by $41,000. - Task: Calculate Martinez's new operating income if the Rhode Island store is closed. Evaluate the accuracy of Maria Lopez's statement regarding the impact of closing this store.2. **Opening a New Store:** - If Martinez keeps the Rhode Island store open and opens another store with identical revenues and costs (including $18,000 for equipment with a one-year useful life and zero disposal value), corporate overhead costs will rise by $2,000. - Task: Calculate the operating income under this scenario and assess the validity of Maria Lopez’s statement about the effect of adding a similar store.**Action Steps**- Click on the links to access additional data for a comprehensive analysis.- Complete the calculations as required to evaluate the potential decision outcomes. Use this case study to understand decision-making processes in managing corporate operations and profitability.

Relevant Cost: It is called relevant because Specific management decision being considered is…

Martinez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2017 is as follows: O (Click the icon to view the add-or-drop segments information.) |(Click to view the operating income for the stores.) Read the reguirements Requirement 1. By closing down the Rhode Island store, Martinez can reduce overall corporate overhead costs by $41,000. Calculate Martinez'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 Martinez's operating income if it closes the Rhode Island store. (Complete all ans parentheses or a minus sign.) - X X et effect is an operating loss enter the amount with Data table (Loss in Revenues) Savings in Costs Rhode Island Store Connecticut Store Revenues $ 1,040,000 S 820.000 Revenues Operating costs Operating costs Cost of goods sold Cost of goods sold 760,000 620,000 Lease rent (renewable each year) 88,000 75,000 Lease rent (renewable each year) Labor costs (paid on an hourly basis) Labor costs (paid on an hourly basis) Depreciation of equipment 48,000 37,000 Utilities (electricity, heating) Depreciation of equipment 27,000 18,000 Corporate overhead Utilities (electricity, heating) 44,000 52,000 46,000 38,000 Total operating costs Allocated corporate overhead 1,013,000 840,000 Effect on operating income (loss) Total operating costs 27,000 $ (20,000) Operating income (loss)

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q