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

Compare and contrast the potential liability, Compare and contrast the pote...

Compare and contrast the potential liability of owners of proprietorships, partnerships (general partners), and corporations. The sole proprietor has limitless liability for ma

Explain systematic risks in financial management, Q. Explain Systematic Ris...

Q. Explain Systematic Risks in Financial management? Systematic risk in non-diversifiable and is associated with the securities Market as well as economic, sociological, politi

Finance manangement, What is the maximum price that you would be willing to...

What is the maximum price that you would be willing to pay for a constant growth stock that has the following characteristics: (a) Dividend (Has Paid): $3.25, (b) Growth: 7%, and (

Cash budget, We need to have done some exploration work on all of the major...

We need to have done some exploration work on all of the major projects for inclusion in our prospectus, but of our $4m we need at least $1m in the bank to pay for all the listing

Mortgages, A mortgage may be defined as a pledge of property ...

A mortgage may be defined as a pledge of property to secure a debt payment; in this context, we will use the term property to mean real estate. If the

Define debenture, Debenture Debenture is a document holding an acknowl...

Debenture Debenture is a document holding an acknowledgment of indebtedness on the part of organizations, usually secured by a charge on the company's assets.

Leverage, EVALUATE THE IMPORTANCE OF LEVERAGE IN FINANCIAL MANAGEMENT OF SM...

EVALUATE THE IMPORTANCE OF LEVERAGE IN FINANCIAL MANAGEMENT OF SMALL SCALE COMPANY

Explain the rapid development of interest rate swap market, If the cost ben...

If the cost benefits of interest rate swaps would similarly be arbitraged away in competitive markets, what other descriptions exist to explain the rapid development of the interes

Determining the appropriate rates in valuation process, After estimat...

After estimating the cash flows, the next step is to determine the appropriate interest rate that should be used to discount the cash flows. The minimum return re

gaaps that are mandatory, a) Talk about in brief the various GAAPs that ar...

a) Talk about in brief the various GAAPs that are mandatory to be followed. b) What are the several components of total cost.

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