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: 11/30/2012 5:09:02 PM | Location : United States

Ask an Expert

Related Discussions:- 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..

Related Questions

Perform appropriate ratio analyses on the balance sheet, Perform appropriat... Perform appropriate ratio analyses on the balance sheet and income statements of your company using techniques discussed in chapter 2 of your textbook. Compare your company to a c

Find out the current stock price, Great Pumpkin Farms just paid a dividend ... Great Pumpkin Farms just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.  Investors require a 16 p

Enumerate the field of study dealing with finance, Enumerate the field of s... Enumerate the field of study dealing with finance The field of study dealing with finance was treated as encompassing three interrelated aspects of raising and administering re

What are factors influenced the shape of the yield curve, What are number o... What are number of factors that influence the shape of the yield curve? There are some of factors which influence the shape of the yield curve as follows: (1) Expectations

Explain the meaning of ledger, Question 1 Write short notes on following- ... Question 1 Write short notes on following- Explain any five important functions of accounting What is Book-Keeping? Explain features of book-keeping Question 2 Ex

Explain the basis risk, Explain the Basis Risk Basis risk considers to ... Explain the Basis Risk Basis risk considers to the floating rates of two counterparties being pegged to two dissimilar indices.  In this situation, as the indexes are not compl

What are the types of major types of finance companies, What are the types ... What are the types of major types of finance companies? There are three main types of finance companies: a. Sales finance institutions which make loans to customers of a cer

Prepare a statement of financial position, Brown has been in business for s... Brown has been in business for some years and has kept her drawings slightly below the level of profits each year. You are her accountant, and she has passed you the following list

Securitization structure of mortgage backed securities, A mortg... A mortgage, is sold to the SPV at the discretion of the bank to securitize it into a mortgage backed security, that is, the mortgage is said to

NPV calc, Capital cost of product a is ? 5 crores and initial capital cost ... Capital cost of product a is ? 5 crores and initial capital cost of product b is ? 3 crores. Life of product a is 30 years and life of product b is 10 years . The difference in ini