User Account

All Pages

Add or Drop Analysis, Financial Management

Assignment Help:
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

Explain firm determines the optimal level of current assets, Explain how a ...

Explain how a firm determines the optimal level of current assets. The optimal level of working capital is defined by finding the amount that balances the requirement for liquidi

Case let, This case has been framed in order to test the skills in evaluati...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer

Give subject matter of participation, Q. Give subject matter of participati...

Q. Give subject matter of participation? Subject matter of participation by and large the workers interests in participation varies with the nature of issues' involved in parti

Define primary advantage to a corporation of investing, What is the primary...

What is the primary advantage to a corporation of investing some of its funds in working capital? By investing in working capital a firm acquires the liquidity it requirements he

Determining the call option value, The effective maturity of a ...

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

Partition of investment risk, Partition of Investment Risk The expecte...

Partition of Investment Risk The expected returns and the fluctuation in returns are two factors in evaluating investments. Expected Returns While the actual returns

Liquidity risk, An investor, who wants to sell a bond even before it ...

An investor, who wants to sell a bond even before it reaches its maturity date, would be concerned as to whether he will receive a price that is close to the true

Floating-rate securities that have constant quoted margin, Let us look into...

Let us look into few floaters that have constant quoted margin. 1. De-leveraged Floaters 2.  Inverse Floaters 3.  Dual-Indexed Flo

Introduction to fixed income portfolio management strategies, Investors use...

Investors use two management strategies to manage their fixed income portfolios. They adopt either active management strategy or passive management strategy. A

Ratio calculations from financial statements, Ricardo Martinez has prepared...

Ricardo Martinez has prepared the following financial statement projections as part of his business plan for starting the Martinez Products Corporation.  The venture is to manufact

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