10. Award:
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
650
0.6
April
750
0.9
May
1,450
1.5
June
1,650
2.5
July
1,650
3.0
August
1,500
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
$ 23,000
Maintenance and repair
21,000
Depreciation (fixed)
41,000
Total
$ 85,000
Marketing and administrative costs
Marketing (variable)
$ 13,500
Administrative (fixed)
54,000
Total
$ 67,500
Total costs
$152,500
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.)
3 out of 3.00 points
VARMIT-B-GONE
Budgeted Income Statement
For the Month of September
Sales revenue
$ 207,360
Service costs:
Variable costs
$ 16,560
Maintenance and repair
21,210
Depreciation (fixed)
41,000
Total service costs
$ 78,770
Marketing and administrative:
Marketing (variable)
$ 9,720
Administrative (fixed)
56,700
Total marketing and administrative costs
$ 66,420
Total costs
$ 145,190
Operating profit
$ 62,170
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
650
0.6
April
750
0.9
May
1,450
1.5
June
1,650
2.5
July
1,650
3.0
August
1,500
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 exchis study.
Service costs
Variable costs
$ 23,000
Maintenance and repair
21,000
Depreciation (fixed)
41,000
Total
$ 85,000
Marketing and administrative costs
Marketing (variable)
$ 13,500
Administrative (fixed)
54,000
Total
$ 67,500
Total costs
$152,500
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.)
VARMIT-B-GONE
Budgeted Income Statement
For the Month of September
Sales revenue
$ 207,360
Service costs:
Variable costs
$ 16,560
Maintenance and repair
21,210
Depreciation (fixed)
41,000
Total service costs
F $
78,770
Marketing and administrative:
Marketing (variable)
$ 9,720
Administrative (fixed)
56,700
Total marketing and administrative costs
F $
66,420
Total costs
F $
145,190
Operating profit
F $
62,170
Explanation:
Sales revenue
$ 207,360
(90% × 1,500) × (80% × 2.4) × $80
Variable costs
$ 16,560
(0.72a × $23,000)
Maintenance and repair
Depreciation
21,210
(1.01 × $21,000)
41000(no change)
Marketing (variable)
$ 9,720
(0.72a × $13,500)
Administrative (fixed)
56,700
(1.05 × $54,000)
aRatio of September to August volume:
September: (90% × 1,500) × (80% × 2.4) = 2,592
August: 1,500 × 2.4 = 3,600
Ratio = 0.72 = 2,592 ÷ 3,600
or
Ratio = 0.80 × 0.90 = 0.72
