QUESTION 5 \"Ugh, we are losing our shirts on this daycarel Almost $40,0001 Mayb
ID: 2337798 • Letter: Q
Question
QUESTION 5 "Ugh, we are losing our shirts on this daycarel Almost $40,0001 Maybe we should just give up on it" complained Mr. Kongngv, His company had offered reduced-cost daycare to employees as a perk to entice younger workers. Here is the data for operating the daycare for the past year. Revenues Variable costs Traceable fixed costs Allocated corporate overhead $120, 00 45,000 89,000 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 $7,800 A. Show calculations that support Mr. Kononexs 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?Explanation / Answer
Calculations as per Mr. Kananov Revenues 120000 Variable costs 45000 Traceable fixed costs 89000 Allocated corporate overhead 24000 Net Income -38000 Almost around $40,000 Calculations of amount saved on closing the center Loss in contribution 75000 (120000-45000) Traceable fixed costs avoided 62300 Closure costs Incurred 7800 Loss to Company on shutdown 20500 (75000+7800-62300) The center should not be closed. The problem the company may face if the center is closed: The workers specialy youngers are not motivated and may result in increase in employee turnover, less production etc.