Reference no: EM132617432

Caledonia College is a small business college located in Ontario. The college has been experiencing financial difficulties recently and is evaluating its programs. The following programs are currently being evaluated:

                                     Technology                       Accounting                                            Healthcare                               Total

Tuition Revenue    $300,000 = Technology             $320,000 = Accounting            $290,000 =Healthcare                $910,000 = Total

Faculty salaries    $ 90,000 = Technology                $215,000= Accounting             $120,000 =Healthcare                 $425,000 = Total

Supplies               $ 9,500 = Technology               $ 10,000= Accounting           $ 15,000 =Healthcare                  $ 34,500= Total

Other fixed expenses  $164,500 = Technology           $175,000= Accounting            $153,000 =Healthcare            $492,500 = Total

Operating Income (Loss) $ 36,000 = Technology           ($80,000) = Accounting            $ 2,000 =Healthcare             ($ 42,000) = Total

Caledonia is considering dropping the accounting program. If the program is dropped:

1. Overall college enrolment will decline, as some students will transfer to other colleges. Lost tuition revenue from the accounting program would amount to $205,000.
2. Part-time faculty members will be terminated. Their salaries total $170,000. Full-time faculty will be transferred to other programs. In addition, 60% of the supplies cost could be saved.
3. Other fixed costs include $77,000 of salaries earned by office and support personnel, and $98,000 of allocated general college overhead costs. One employee with a salary of $22,000 will be transferred to another department, the other office and support personnel will be laid off.

Required:

Problem 1: Should the accounting program be dropped? Show supporting calculations. Use either the incremental or total approach.