Question

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should
a.sh ut down.

b.exit the industry.

c.stay open because shutting down would be more expensive.

d.stay open because the firm is making an economic profit.

Answer 1

Answer:

C. Stay Open because Shutting Down would be More Expensive

Explanation:

Although it is quite obvious that in the short-run the business is not breaking even, based on the available options, staying open will be the best current course of action. Staying open and seeing if the trend of things change in coming fiscal years or financial periods will be better than shutting down.

Shutting down takes alot of processes that are quite expensive. Some of the processes include

• The Decision to Close  
• File dissolution documents
• Cancel registrations, permits, licenses, and business names
• Comply with employment and labor laws
• Resolve financial obligations
• Maintain adequate records

These processes are expensive and since the business does not know what is causing  the inability to cover its entire costs, it should investigate and find ways of increasing its total revenue to cover its entire costs before deciding to shut down completely.

a. Shut Down- Shutting Down is More Expensive

b. Exit the Industry- There isn't enough information to know exactly why the business is not making a profit