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Pet Hotel, Inc. operates three luxury pet boarding facilities and expects the following results for the coming year.  {picture} Answer each of the following questions independently.  1. Fixed costs are all allocated and unavoidable. What will happen to profit if Pet Hotel discontinues operations at Pet Spa?  2. Suppose now that $25,000 of the fixed costs shown for Pet Spa is avoidable. What will happen to total profits if Pet Hotel discontinues operations at Pet Spa?

Pet Hotel, Inc. operates three luxury pet boarding facilities and expects the following results for the coming year.  {picture} Answer each of the following questions independently.  1. Fixed costs are all allocated and unavoidable. What will happen to profit if Pet Hotel discontinues operations at Pet Spa?  2. Suppose now that $25,000 of the fixed costs shown for Pet Spa is avoidable. What will happen to total profits if Pet Hotel discontinues operations at Pet Spa?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pet Hotel, Inc. operates three luxury pet boarding facilities and expects the following results for the coming year. 

{picture}

Answer each of the following questions independently. 

1. Fixed costs are all allocated and unavoidable. What will happen to profit if Pet Hotel discontinues operations at Pet Spa? 

2. Suppose now that $25,000 of the fixed costs shown for Pet Spa is avoidable. What will happen to total profits if Pet Hotel discontinues operations at Pet Spa?

Pet Spas Pet Palace Pet Castle Total Revenue Variable costs Contribution margin Fixed costs Net income (loss) $120,000 40,000 80,000 90,000 ($10,000) $140,000 560,000 90,000 50,000 $ 40,000 $180,000 60,000 120,000 60,000 $ 60,000 $440,000 150,000 290,000 200,000 $ 90,000
Transcribed Image Text:Pet Spas Pet Palace Pet Castle Total Revenue Variable costs Contribution margin Fixed costs Net income (loss) $120,000 40,000 80,000 90,000 ($10,000) $140,000 560,000 90,000 50,000 $ 40,000 $180,000 60,000 120,000 60,000 $ 60,000 $440,000 150,000 290,000 200,000 $ 90,000
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