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Financial analysis of daycare center

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.

Revenues $120,000
Fixed Costs $45,000
Traceable Fixed Costs $89,000
Allocated Corporate Overhead $24,000

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 Kara 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?

Solution Preview

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.

Revenues $120,000
Fixed Costs $45,000
Traceable Fixed Costs $89,000
Allocated Corporate ...

Solution Summary

Response guides on the financial analysis of daycare center

$2.19