Services provides landscaping services in Edison. Kate Chen, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the company’s business. She estimates that doing so will result in lost revenues of $59,000 per year (including the lost tree business from customers who use the company for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without the lawn business, Kate estimates that the company will save 14 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities. Required:  a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.) KC SERVICES                                                     Annual Income Statement                                                                            Before Dropping                    After Dropping                                                                                        Services                                     Service Sales revenue                                                       $382,000                              _______? ______ Costs                                                                     ______________                     _______________ Equipment leases                                                     300,000                               ________? ______ Labor                                                                           18,000                                                         ?              Utilities                                                                         12,500                                                         ?              Rent                                                                             10,750                                                         ?              Other costs                                                                  15,000                                                         ?              Manager’s Salary                                                         38,900                                                         ?              Total costs                                                                   395,150                                                         ?              Operating profit (loss)                                                   -13,150                                                        ?          b. Should Kate Discontinue the lawn service?       _____ Yes       _____

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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 KC Services provides landscaping services in Edison. Kate Chen, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the company’s business. She estimates that doing so will result in lost revenues of $59,000 per year (including the lost tree business from customers who use the company for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without the lawn business, Kate estimates that the company will save 14 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities.

Required:

 a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.)

KC SERVICES

                                                    Annual Income Statement

 

                                                                         Before Dropping                    After Dropping

                                                                                       Services                                     Service

Sales revenue                                                       $382,000                              _______? ______

Costs                                                                     ______________                     _______________

Equipment leases                                                     300,000                               ________? ______

Labor                                                                           18,000                                                         ?             

Utilities                                                                         12,500                                                         ?             

Rent                                                                             10,750                                                         ?             

Other costs                                                                  15,000                                                         ?             

Manager’s Salary                                                         38,900                                                         ?             

Total costs                                                                   395,150                                                         ?             

Operating profit (loss)                                                   -13,150                                                        ?     

 

  b. Should Kate Discontinue the lawn service?

      _____ Yes

      _____ No         

 

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