"It's Close to a $40,000 Loser and We Ought to Devote

question 52

Essay

"It's close to a $40,000 loser and we ought to devote our efforts elsewhere," noted Kara Whitmore, after reviewing financial reports of her company's attempt to offer a reduced-price daycare service to employees. The daycare's financial figures for the year just ended follow. $\begin{array} { | l | r | } \hline \text { Revenues } & \$ 120.000 \\\hline \text { Variable costs } & 45.000 \\\hline \text { Traceable fixed costs } & 89.000 \\\hline \text { Allocated corporate overhead } & 24.000 \\\hline\end{array}$ If the daycare service/centre is closed, 70% of the traceable fixed cost will be avoided. In addition, the company will incur one-time closure costs of $6,800.
Required:
A. Show calculations that support Kara Whitmore's belief that the daycare centre lost almost $40,000.
B. Should the centre be closed? Show calculations to support your answer.
C. What problem might the company experience if the centre is closed?

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