Question
The student association of Simcoe University runs two bars on campus. Current Financial info: (in $000) Clean-Pub Sticky-Floor Total Sales 43.0 15.1 58.1 Cost of
The student association of Simcoe University runs two bars on campus. Current Financial info:
(in $000) | Clean-Pub | Sticky-Floor | Total |
Sales | 43.0 | 15.1 | 58.1 |
Cost of Goods Sold | 30.0 | 8.0 | 38.0 |
Rent | 5.0 | 4.0 | 9.0 |
Labour | 4.0 | 3.0 | 7.0 |
Administrative | 3.0 | 2.0 | 5.0 |
All of the Cost of Goods Sold is for consumable items (beer, soft-drinks, other drinks)
All of the Rent is part of a long-term lease. The lease cannot be broken.
The lease at the Sticky-Floor is about to end and the student association is considering if they should renew the lease or close this location. If the Sticky-Floor is closed:
- Sales at Clean-Pub will increase by 30%
- Discounts on consumable items will be lost, resulting in a price increase of 5% for these items
- Clean-Pub will have to rent more space this will increase rent from $5 to $8 per year
- If Sticky-Floor is closed, all of its labour costs can be avoided
- Administrative costs (payroll, purchasing, accounts payable) are shared between the two pubs. $1.0 of these costs can be eliminated if the Sticky-floor is closed.
The president of the student association has asked you to give a qualitative and quantitative assessment of closing the Sticky-Floor. This assessment should include:
- What is student associations total net income if the stick-floor is closed or not closed?
- Identify and briefly discuss other factors to be considered.
- Make a recommendation.
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