A scuba diving shop has the following profit and loss statement for its quietest month of the year.
Scuba Dives Ltd
Profit and Loss Statement for February

$\begin{array}{lrr}
\text { Revenue } & \$ 70,000 & \
\text { Cost of goods sold } & \underline{28,000} & \
\text { Groff profit } & & 42,000 \
\text { Less expenses } & & \
\text { Maintenance } & 28,000 & \
\text { Salaries \& wages } & 22,000 & \
\text { Rent } & \underline{25,000} & \underline{75,000} \
\text { Net operating loss } & & \underline{33,000}
\end{array}$ The shop's accountant has determined that:
$\bullet$The shop pays $7,000 per month under a maintenance agreement to a contractor. The remaining maintenance expense is variable.
$\bullet$50% of the salaries and wages are fixed.
$\bullet$Rent is all fixed.
What would have been the impact on the shop's profit for the year if it had closed in February?

Question

A scuba diving shop has the following profit and loss statement for its quietest month of the year.
Scuba Dives Ltd
Profit and Loss Statement for February

$\begin{array}{lrr}
\text { Revenue } & \$ 70,000 & \
\text { Cost of goods sold } & \underline{28,000} & \
\text { Groff profit } & & 42,000 \
\text { Less expenses } & & \
\text { Maintenance } & 28,000 & \
\text { Salaries \& wages } & 22,000 & \
\text { Rent } & \underline{25,000} & \underline{75,000} \
\text { Net operating loss } & & \underline{33,000}
\end{array}$ The shop's accountant has determined that:
$\bullet$The shop pays $7,000 per month under a maintenance agreement to a contractor. The remaining maintenance expense is variable.
$\bullet$50% of the salaries and wages are fixed.
$\bullet$Rent is all fixed.
What would have been the impact on the shop's profit for the year if it had closed in February?

Quizplus · Accepted Answer

Closing the shop for one month in February would result in a loss of revenue of $20,000 ($40,000/12 months * 1 month).

The shop pays $7,000 per month under a maintenance agreement to a contractor, which is a fixed cost, so it would have no impact on the profit.

50% of the salaries and wages are fixed, so the shop would save 50% of the total salaries and wages expense during the month of February.

Rent is all fixed, so it would have no impact on the profit.

Therefore, the total impact on the profit would be a reduction of $10,000 ($20,000 loss of revenue - $10,000 savings on salaries and wages).

A Scuba Diving Shop Has the Following Profit and Loss