Question

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:

Revenue, 750 hours at CHF 10 per hour                                                                     CHF 7,500 Less            Teacher salaries                                                     CHF 5,300            Supplies                                                                           1,200            Depreciation                                                                   1,700            Sanitary engineering                                                         200            Other fixed costs                                                               400                                     8,000            Operating income (loss)                                                                                     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 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

Answer 1