Chelsea Ho just heard that the Skin Therapy division of Rosinta Spa Rendezvous is being considered for closure. Chelsea has been with Rendezvous for ten years and has managed the department well. She has increased revenues steadily over the years, has raised the quality of the service by recruiting some of the most qualified dermatologists and skin consultants, and has even had several coverages in the past three years in national beauty, nail and spa magazines such as HJi and Creative Head.

She knows that every quarter, the owner informs her that the Skin Therapy division is not covering its costs, but that does not make sense to her. She has streamlined operation by cutting cut any wasted efforts and resource and, through conversations with managers at other firms, believes that she has one of the most efficient teams going.

So, Chelsea decided to be proactive and asked to see the financial statements. She wanted to look them over and see how the numbers were adding up. And she was shocked. It was true. Her division had losses each quarter so far this year. Now, Chelsea does not know what to do. She does not want to go to the manager of the Massage Therapy because she and Leilani have had a rivalry ever since she started at Rendezvous. Chelsea has always suspected that Leilani was sabotaging her efforts and trying to get her fired, but she never had any concrete proof.

Leilani, as the manager for the Massage Therapy department, which is the owners pride and joy, is responsible for financial decisions for the firm such as the allocation of the cost that is shared between the two divisions (the leased equipment, utilities, insurance, rent, and other general expenses). However, those are split 50/50 between the departments, so there cannot be anything wrong with that. Now it looks as though she may lose not only her job but the entire department.

Chelsea asks the controller for a set of financial statements for the entire firm and goes home to look them over. Frustrated, she puts them away and starts looking at job postings.

What is your suggestion for Chelsea? Choose one.

1. Yes, find another job. The financial statements correctly show the cost allocation. Here is the reason
2. No, the financial statements are not accurate in the cost allocation. This is what Chelsea can do..

Please explain your answer with the pros and cons in less than 250 words.

Sales Quarter 1 Total Massage 205,000 150,000 1,251 938 203,749 149,062 Quarter 2 Skin Total Massage 55,000 213,000 156,000 313 1 313 975 54,687 211,687 155,025 Skin Total 57,000 520,000 338 3,126 56,662 516,874 Ouarter 3 Massage Skin 410,000 110,000 2,563 563 407,437 109,437 Direct Cost of Sales Gross Margin Expense Payroll SGA Leased equipment Utilities Insurance Rent Other expenses Total Operating Expenses EBIT Interest expenses Taxes incurred Net profit 120,200 10,000 1,440 600 2,500 17,030 25,000 176,770 26,979 1,518 11,746 13,715 90,000 7,000 720 300 1,250 8,515 12,500 120.285 28,777 759 5,873 22,145 30,200 3,000 720 300 1,250 8,515 12.500 56.485 (1.798) 759 5 .873 (8,430) 120,200 10,800 1,680 620 2,800 23,400 26,750 186,250 25,437 1,098 11,538 12,801 90,000 7,800 840 310 1,400 11,700 13,375 125,425 29,600 549 5,769 23,282 30,200 286,000 3,000 34,500 840 1,920 310 650 1,400 3,500 11,700 23,400 13,37558,600 60,825 408,570 4,163) 108,304 549 6 60 5,769 37,330 (10,481) 70,314 231,000 30,500 960 325 1,750 11,700 29.300 305.535 101.902 330 18,665 82,907 55,000 4,000 960 325 1,750 11,700 29,300 103.035 6,402 330 18,665 (12,593)