) The Flamboyant Flirt is a small but prosperous hair cutting salon. Diane Stock, the manager of the salon, has been asked by several clients if she will ever offer other "hair related" services (e.g., perm, dye, etc.). After careful thought, Ms. Stock is considering expanding her offerings. However, in order to do so, she will have to hire one additional stylist at a salary of $26,000 per year. Other expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and miscellaneous expenses by 10%. Her revenues from additional services are likely to be $55,000 for the next year (i.e., 2021). The Flamboyant Flirt's income statement for the most recent year is presented below.

\begin{array}{c}\text {The Flamboyant Flirt}\\\text { Income Statement for the Year Ended December 2020}\\\begin{array}{lr}\text {Sales Revenue}&&\$220,000\\ \text {Costs:}\\\text { Labor } & \$ 5,000 \\\text { Utilities } & 12,000 \\\text { Supplies } & 45,000 \\\text { Rent } & 18,000 \\\text { Miscellaneous } & 5,000 \\\text { Manager's Salary } & 30,000&162,000 \\\text { Operating Profits } &&\$58,000\end{array}\end{array}

a. Based on your financial analysis, should Diane Stock go ahead with the expansion?
b. What other factors must Ms. Stock consider before making a final decision?

In 2020, the Merkel Company Had Revenues of $2,000,000 and Costs

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge