Quiz 4 Solution - ACCT 310 - QUIZ 4 Solution Drop...

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Unformatted text preview: ACCT 310 - QUIZ 4 Solution Drop Housekeeping Lost revenue Avoid variable expenses Avoid liability insurance Avoid administrator’s salary Proceeds from sale of van Lost revenue - Home Nursing Avoid variable expenses - Home Nursing Lost revenue - Meals on Wheels Avoid variable expenses - Meals on Wheels Net differential benefit (cost) $ $ Relevant (240,000) 160,000 15,000 Keep Housekeeping 11,100 (.30 * $37,000) 10,000 (31,200) 14,400 (48,000) 25,200 (83,500) (.12 * $260,000) (.12 * $120,000) (.12 * $400,000) (.12 * $210,000) A quantitative analysis focusing on the relevant costs and benefits of dropping the Housekeeping program as compared to keeping the program indicates a net cost of $83,500 if the program is dropped. Therefore this analysis suggests that the Housekeeping program should be retained. T Qualitative Factors The quantitative analysis should be supplemented by consideration of qualitative factors, or factors that cannot be easily stated in dollar terms, that may be relevant to the decision. Qualitative factors that may be important to this decision include: < < < < The organization may not adequately fulfill its service mission if the Housekeeping program is dropped. Elimination of Housekeeping may free up resources that can be used in providing a new type of service. Firing Housekeeping’s program administrator is likely to cause turmoil in that person’s life. Elimination of Housekeeping may create concern among the organization’s employees that their program will also be eliminated. 1 ...
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