4-35. Millbridge Family Services (MFS) currently operates a foster care program

Question

4-35. Millbridge Family Services (MFS) currently operates a foster care program that is fully funded by the state. Changing government priorities are expected to result in a 20% reduction in its state foster care funding for the upcoming fiscal year. MFS’s management is considering eliminating the foster care program in the next fiscal year in light of these anticipated funding cuts. The total foster care program expenses for the upcoming fiscal year is $120,000. The foster care program’s budgeted expenses include $25,000 of salaries and occupancy costs that are allocated to its program budget from MFS central administration. These allocated expenses of $25,000 are unavoidable even if the foster care program is eliminated. What is the total relevant cost that should be considered in making this decision?

Explanation / Answer

Millbridge Family Services (MFS) currently operates a foster care program that is fully
funded by the state. Changing government priorities are expected to result in a 20% reduction
in its state foster care funding for the upcoming fiscal year.

So, the total foster case program expenses by MFS for the upcoming fiscal year is $120,000.

The total relevant cost that should be considered in making this decision is the 20% of the total foster care expenses for the upcoming fiscal year.

The Relevant cost = $120000 * 20% = $24000

The other relevant cost of $25,000 towards salaries and occupancy costs which are unavoidable. These costs are not that relevant because if MFS’s management does not eliminate the foster care program in the next fiscal year, these expenses are covered in the 80% fund received from government.

So, the relevant cost is $24000 which is gap to be filled if the foster care program continues.

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.