Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The Santa Fe is a Californian hotel with three revenue-generating departments. One of these is a foyer shop that has recorded a loss in each
The Santa Fe is a Californian hotel with three revenue-generating departments. One of these is a foyer shop that has recorded a loss in each of the last three years. In the most recent year, the shops profit performance schedule was as follows.
Sales $300,000
Cost of goods sold 185,000
Gross profit 115,000
Other expenses 126,000
Net loss $ (11,000)
Included in other expenses is an allocated hotel electricity expense of $7,500. This overhead is allocated to the shop according to a complicated formula that recognises floor space as well as the hours that the shop is open. Of the $7,500 allocated, it is estimated that if the shop were to close, $3,000 in electricity would be saved. The other expenses also include $12,000 of allocated overheads pertaining to rent of the building and also maintenance of the hotels physical infrastructure. All of the remaining other expenses are directly traceable to the shop and would be eliminated if the shop were to close.
Required:
Prepare a financial analysis that demonstrates whether the shop should be closed.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started