It's close to a $40,000 loser and we ought to devote our efforts elsewhere", noted Kara Whitmore, after reviewing financial reports of her company's attempt to offer a reduced-price daycare service to employees. The daycare's financial figures for the year just ended follow.
Revenues $120,000
Fixed Costs $45,000
Traceable Fixed Costs $89,000
Allocated Corporate Overhead $24,000
If the daycare service/center is closed, 70% of the traceable fixed cost will be avoided. In addition, the company will incur one-time closure costs of $6,800.
Required:
1) Show calculations that support Kara Whitmore's belief that the daycare center lost almost $40,000.
2) Should the center be closed? Show calculations to support your answer.
3) What problem might the company experience if the center is closed?