6-36 Deletion of Product Line St. Gallen American School is an international pri

Question

6-36 Deletion of Product Line St. Gallen American School is an international private elementary school. In addition to regular classes, after-school care is provided between 3:00 PM and 6:00 pM at CHF 10 per child per hour Financial results for the after-school care for a representative month are as follows: CHP 7,500 Revenue, 750 hours at CHF 10 per hour Less Teacher salaries Supplies Depreciation Sanitary engineering Other fixed costs Operating income (loss) CHF 5,300 1,200 1,700 200 4008,600 8,800 CHF (1,300) The director of St. Gallen American School is considering discontinuing the after-school care services because it is not fair to the other students to subsidize the after-school care program. He thinks that eliminating the program will free up CHF 1,300 a month to support regular classes. 1. Compute the financial impact on St. Gallen American School from discontinuing the after-school care program. 2. List three qualitative factors that would influence your decision.

Explanation / Answer

The financial impact would include loss in operating profit of 800 CHF since depreciation and other fixed costs are allocated costs and would continue to incur in normal school (regular classes) also. Other costs viz salary, supply and sanitry engineering can be treated as variable costs directly incurred only for the purpose of after school care and can be saved if classes are not carried out.

2. 3 qualititative factors that would affect decision are:

Revenue    7,500.00 CHF Salaries - 5,300.00 CHF Supplies - 1,200.00 CHF Sanitry -     200.00 CHF Profit 800.00 CHF

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