Customer Service Chat
Get quote & make Payment
add or drop analysis, Financial Management
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.
Posted Date: 11/28/2012 6:38:28 PM | Location : United States
Ask an Expert
add or drop analysis, Assignment Help, Ask Question on add or drop analysis, Get Answer, Expert's Help, add or drop analysis Discussions
Write discussion on add or drop analysis
Your posts are moderated
Write your message here..
Debt holders versus shareholders, Debt holders versus Shareholders A se...
Debt holders versus Shareholders A second agency problem arises because of potential conflict between stockholders and creditors. Creditors lend finances to the firm at rates w
Assignment, 1. If Robinson wishes to maximize its total market value, would...
1. If Robinson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. 2. Construct Robinson’s market va
Computing hedge ratio: the modified duration method, Let us consider a situ...
Let us consider a situation wherein a position in an interest rate dependent asset such as a bond portfolio or a money market security is hedged by using an interest ra
Highest earnings-per-share, McGovern Company is comparing two disimilar cap...
McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the Company would have 700,000 shares of s
Explain the term present value of the firm’s operations, Explain the term “...
Explain the term “present value of the firm’s operations” (also known as Enterprise Value). What does this number represent? The present value of the free cash flows of the comp
How to calculate correlation co-efficient, Q. How to calculate correlation ...
Q. How to calculate correlation co-efficient? The correlation co-efficient measures the nature and the extent of relationship between the stock market index return and the stoc
Show the current liabilities method, Q. Show the Current Liabilities Method...
Q. Show the Current Liabilities Method? Forecasting of Current Assets as well as Current Liabilities Method: - As-per to this method an estimate is made of forthcoming period's
Discuss the different forms of financing, Question 1 Explain the concept ...
Question 1 Explain the concept and phases of capital budgeting Question 2 Define and explain the methods of demand forecasting Question 3 Mention the elements o
Working capital turnover, Definition of 'Working Capital Turnover': A ...
Definition of 'Working Capital Turnover': A calculation comparing the depletion of working capital to the generation of sales over a provided period. This provides some useful
Activity-based management - abm, A procedure that invented in the 1980s for...
A procedure that invented in the 1980s for evaluating the processes of a business to find strengths and weaknesses. Specially, activity-based management finds out areas where a bus
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Follow Us |
T & C
Copyright by ExpertsMind IT Educational Pvt. Ltd.