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.

Continue/Discontinue	Continue	Discontinue	Differential Analysis
Revenue	$ 410,000
Costs
Variable staffing and merchandise expenses	($ 241,000)
Variable selling expenses	($ 87,400)
Fixed costs	($ 74,100)
Profit (loss)	$7,500.00
Continue/Million Dollar Listing	Continue	"Million Dollar"	Differential Analysis
Revenue	$ 410,000
Costs
Variable staffing and merchandise expenses	($ 241,000)
Variable selling expenses	($ 87,400)
Fixed costs	($ 74,100)
Profit (loss)	$7,500.00

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