The following information is related to A&P Supermarket:
Pharmacy Bakery Grocery Sales Revenues $100,000 $50,000 $400,000
Variable Costs $60,000 $20,000 $200,000
Fixed Costs $90,000 $10,000 $100,000
Operating Income ($50,000) $20,000 $100,000
Total $550,000 $280,000 $200,000 $70,000
The pharmacy has been generating losses for the last four years. The manager is considering closing down the pharmacy. If the pharmacy is closed, the pharmacist will be laid off. His salary is $60,000 per period. The space of the pharmacy will be used to expand the bakery, which is expected to double its Sales Revenues.
Required:
1. Should A&P close down the pharmacy?
2. What is the net effect on the annual profit?