Purpose: Evaluate whether to continue or discontinue a segment; explain the business ramifications of your decision

KSAs: Understand and apply differential analysis

Points: 10

Admin: This is a multi-part question. There are no minimum word counts but you must answer the question in full.

Discussion Initial Response Due by Wednesday: You own Paradox Escape Room Ltd and have 3 locations in the local area. One of the locations is exclusively horror-themed escape rooms and the location consistently breaks even. The revenue and costs for the horror-themed escape room are below. You are evaluating whether to close the horror-themed location or change it to a "Million Dollar Listing Virtual Reality" escape room.

The "Million Dollar Listing" option forecasts the following changes to operation revenues and expenses:

revenues will increase by 15%

variable staffing and merchandise costs will increase by 5%

fixed costs increase by $7,000

variable selling expenses remain unchanged

Part 1: Prepare two differential analyses. Remember that each analysis will compare the current situation to the change. Show your work.

Analysis #1 will determine if the horror-themed locations should be continued or discontinued.

Analysis #2 will determine if the horror-themed location should be changed to a "Million Dollar Listing Virtual Reality" theme.

Part 2: As the financial analyst, you believe there is a fourth option to make the escape room more profitable. Describe your plan to increase profitability.

Discussion Response Due by Saturday: Review another student's fourth option (Part 2) and evaluate their profitability plan.

\begin{tabular}{|c|r|r|r|} \hline \multicolumn{1}{|c|}{ Continue/Discontinue } & \multicolumn{1}{c|}{ Continue Discontinue } & Differential Analysis \\ \hline Revenue & $410,000 & & \\ \hline Costs & & & \\ \hline Variable staffing and merchandise expenses & ($241,000) & & \\ \hline Variable selling expenses & ($87,400) & & \\ \hline Fixed costs & ($74,100) & & \\ \hline Profit (loss) & $7,500.00 & & \\ \hline \end{tabular} \begin{tabular}{|c|r|r|r|} \hline \multicolumn{1}{|c|}{ Continue/Million Dollar Listing } & \multicolumn{1}{|c|}{ Continue "Million Dollar" Differential Analysis } \\ \hline Revenue & $410,000 & & \\ \hline Costs & & & \\ \hline Variable staffing and merchandise expenses & ($241,000) & & \\ \hline Variable selling expenses & ($87,400) & & \\ \hline Fixed costs & ($74,100) & & \\ \hline Profit (loss) & $7,500.00 & & \\ \hline \end{tabular} \begin{tabular}{|c|r|r|r|} \hline \multicolumn{1}{|c|}{ Continue/Discontinue } & \multicolumn{1}{c|}{ Continue Discontinue } & Differential Analysis \\ \hline Revenue & $410,000 & & \\ \hline Costs & & & \\ \hline Variable staffing and merchandise expenses & ($241,000) & & \\ \hline Variable selling expenses & ($87,400) & & \\ \hline Fixed costs & ($74,100) & & \\ \hline Profit (loss) & $7,500.00 & & \\ \hline \end{tabular} \begin{tabular}{|c|r|r|r|} \hline \multicolumn{1}{|c|}{ Continue/Million Dollar Listing } & \multicolumn{1}{|c|}{ Continue "Million Dollar" Differential Analysis } \\ \hline Revenue & $410,000 & & \\ \hline Costs & & & \\ \hline Variable staffing and merchandise expenses & ($241,000) & & \\ \hline Variable selling expenses & ($87,400) & & \\ \hline Fixed costs & ($74,100) & & \\ \hline Profit (loss) & $7,500.00 & & \\ \hline \end{tabular}