User Account

All Pages

add or drop analysis, Financial Management

Assignment Help:
Add or Drop Analysis
Lakespring Retirement Village is home to senior citizens who are fairly independent but need assistance with basic health care and occasional meals. Jill Thompson, a licensed beautician, works on salary 16 hours a week at Lakespring. Funds at the retirement village have been getting tight due to an increase in the number of Medicaid and other low income residents. Carl Jones, Lakespring’s administrator, told Thompson that the hair salon might have to be closed. Jones is sympathetic because he knows that it will be inconvenient for many residents to get this service elsewhere, and Thompson’s charges are about all the residents can afford, but he wonders how he can keep any unit open that does not break even. Jones is looking for a way to save the hair salon and has provided the following information:
Hair Cuts Permanents Brief Visits
Charge per resident $10.00 $20.00 $5.00
Variable cost per service performed
Cleaning/styling/setting products $1.00 $4.00 $3.50
Variable water expense $0.15 $0.25 $0.25
Laundry expenses for towels, smocks etc. $0.10 $0.30 $0.30

Jill is currently doing an average weekly business of 16 hair cuts, 7 permanents, and 4 brief visits, which take half an hour, an hour, and fifteen minutes, respectively. The hair salon is currently allocated rent of $250 per month and other upkeep expenses of $50 a month. Thompson is paid $12 per hour, and she earned $768 last month.
a. Prepare a monthly income statement and determine the total contribution margin and product margin for each service line. Determine net income for the service taken as a whole.
b. How would you advise Jones: should he close the hair salon? Why or why not?
c. Should Jones try to persuade Thompson to drop any service she now offers?
The 75 residents of Lakespring currently spend on average $20 a month each for regular health care services at a local clinic. This expense is subsidized by the retirement village. Jones believes that if the salon is closed, the vacated space may be used to hire a physician to provide these services on site on a contractual basis for 9 months at a time. Chelsea Walden, the physician he is considering for this job, estimates that her fixed cost in providing this service will be $1,000 and she will also incur a cost of $12 per patient per month on a 9-month basis to cover the 75 residents. If she wants to earn $3,000 in profit for the 9-month period and Jones would like to pay her on a per resident per month basis, what would her price be?
d. Given Walden’s price and the corresponding monthly cost to Lakespring, would it be financially beneficial for Jones to shut down the salon and start the clinic, or is the current arrangement a better deal?
e. What decision should Jones make? Provide justifications.

Related Discussions:- add or drop analysis

How industrial company inflate the value of its inventory, How can an indus...

How can an industrial company inflate the value of its inventory so as to decrease net income and the taxes is has to pay that year? If a company increases the value of its inv

Determine stock turnover, a)   Year 2 Year...

a)   Year 2 Year 1   Stock turnover (350/500) * 365 = 255.5 days (250/450) * 365 = 202.7 days

Classification of the cost, 1) Future cost and historical cost: financial ...

1) Future cost and historical cost: financial decision is based on the future cost and not on the historical cost. The decision related to the future and hence the cost are likely

Explain cash flow budget and npv in lkl plc, LKL PLC Project VZ (...

LKL PLC Project VZ (a) Cash Flow budget and NPV WORKINGS

What could be your priority in baba''s case, QUESTION (a) A financial f...

QUESTION (a) A financial fraud has happened in BABA Bank. Your services have been retained as forensic examiner to investigate the above case While investigating you receive

Companies that would be best able to handle high debt levels, Give two exam...

Give two examples of types of companies that would be best able to handle high debt levels. Companies that manage local telephone service and those that manage natural gas deli

How does accounts receivable factoring work, How does accounts receivable f...

How does accounts receivable factoring work?  What are the benefits to the two parties involved?  What are the risks? Factoring is when one firm trade accounts receivable (AR)

What is traded investments, Traded investments The term traded investme...

Traded investments The term traded investment refers to the buy of an investment asset which is traded in the financial markets. Instance includes government and ordinary share

Calculate the effective annual rate, I keep getting different answers in ex...

I keep getting different answers in excel and the financial calculator. is there someone who can walk me through this problem step by step: You plan to buy a new house for $250,0

Explain traditional method of measurement, Q. Explain Traditional Method of...

Q. Explain Traditional Method of Measurement? Computation of yield to measure a financial asset's return is the simplest and oldest technique of measurement. Yield can be find

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd