Varmit-B-Gone is a pest control service that operates in a
suburban neighborhood. The company attempts to make service calls
at least once a month to all homes that subscribe to its service.
It makes more frequent calls during the summer. The number of
subscribers also varies with the season. The number of subscribers
and the average number of calls to each subscriber for the months
of interest follow:
Subscribers | Service calls (per subscriber) | |||||
March | 1,050 | 0.6 | ||||
April | 1,150 | 0.9 | ||||
May | 1,850 | 1.5 | ||||
June | 2,050 | 2.5 | ||||
July | 2,050 | 3.0 | ||||
August | 2,000 | 2.4 | ||||
The average price charged for a service call is $80. Of the service
calls, 30 percent are paid in the month the service is rendered, 60
percent in the month after the service is rendered, and 8 percent
in the second month after. The remaining 2 percent is
uncollectible.
Varmit-B-Gone estimates that the number of subscribers in September should fall 10 percent below August levels, and the number of service calls per subscriber should decrease by an estimated 20 percent. The following information is available for costs incurred in August. All costs except depreciation are paid in cash.
Service costs | ||
Variable costs | $ | 19,000 |
Maintenance and repair | 17,000 | |
Depreciation (fixed) | 37,000 | |
Total | $ | 73,000 |
Marketing and administrative costs | ||
Marketing (variable) | $ | 22,500 |
Administrative (fixed) | 89,000 | |
Total | $ | 111,500 |
Total costs | $ | 184,500 |
Variable service and marketing costs change with volume. Fixed
depreciation will remain the same, but fixed administrative costs
will increase by 5 percent beginning September 1. Maintenance and
repair are provided by contract, which calls for a 1 percent
increase in September.
Required:
Prepare a budgeted income statement for September. (Round intermediate calculations to 2 decimals places.)
|
Budgeted income statement for September | |||
Service revenue (4147 calls * $80) | $3,31,760.00 | ||
Less : Variable cost | |||
- Service Cost | $23,758.85 | ||
- Maintenance & Repair | $22,542.11 | ||
- Marketing & Admin cost | $16,919.18 | ||
Total Variable cost | $63,220.15 | ||
Contribution Margin | $2,68,539.85 | ||
Less : Fixed cost | |||
- Depreciation | $51,000.00 | ||
- Adminstrative | $67,200.00 | ||
Total Fixed cost | $1,18,200.00 | ||
Net Income for September | $1,50,339.85 | ||
Working | |||
No.of subscribers in August | 2400 | ||
Aveg.no.of calls to each subscriber in Aug. | 2.4 | ||
Total Service calls in the month of Aug. | 5760 | ||
No.of subscribers in Sep = 2400 *90% = | 2160 | ||
Aveg.no.of calls to each subscriber in Sep. = 2.4 *80% = | 1.92 | ||
Total Service calls in the month of September | 4147 |
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