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

question 14

Essay

"It's close to a $40,000 loser and we ought to devote our efforts elsewhere," noted Karenne 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. $$\begin{array} { l r } \text { Revenues } & \$ 120,000 \\\text { Variable costs } & 45,000 \\\text { Traceable fixed costs } & 89,000 \\\text { Allocated corporate overhead } & 24,000\end{array}$$
If the daycare service/center 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 Whitmore's belief that the daycare center lost almost $40,000.
B. Should the center be closed? Show calculations to support your answer.
C. What problem might the company experience if the center is closed?

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Definitions:

Independent Samples

Samples drawn from different populations without any pairing or matching between the samples.

Normal Distribution

A distribution of probability that reflects symmetry around the mean, illustrating that occurrences near the mean are more common than those further away from it.

Independent

The condition where two variables do not affect or influence each other.

Standard Error

The standard deviation of the sample mean's distribution; a measure of how much a sample mean varies from the true population mean.