Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is
ID: 2490791 • Letter: C
Question
Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is currently set up as a full-time child care facility for children between the ages of 12 months and 6 years. Cindy is trying to determine whether the center should expand its facilities to incorporate a newborn care room for infants between the ages of 6 weeks and 12 months. The necessary space already exists. An investment of $25,580 would be needed, however, to purchase cribs, high chairs, etc. The equipment purchased for the room would have a 5-year useful life with zero salvage value.
The newborn nursery would be staffed to handle 12 infants on a full-time basis. The parents of each infant would be charged $219 weekly, and the facility would operate 52 weeks of the year. Staffing the nursery would require two full-time specialists and five part-time assistants at an annual cost of $102,300. Food, diapers, and other miscellaneous supplies are expected to total $12,700 annually.
Determine annual net income and net cash flow for the new nursery.
Explanation / Answer
Annual net income: $2,824
Free revenue - (Salaries expense + food and supplies expense + Depreciation expense) = Net income
$126,048* - (103,964 + 13,740 + 5,520**) = $2,824
Free revenue=12 x $202 x 52 = $126,048
$26,101 / 5 = $5,520
Net cash flow for the new nursery $8,344
Free revenue - (Salaries expense + food and supplies expense) = Net cash flow
$126,048* - (103,964 + 13,740) = $8,344
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