"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?

Question

"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?

Quizplus · Accepted Answer

The Answer of "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?

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