Problem 1 - Handy-Man Services is a repair-service company specializing in small

Question

Problem 1 - Handy-Man Services is a repair-service company specializing in small household jobs. Each client pays a fixed monthly service fee based on the number of rooms in the house. Records are kept on the time and material costs used for each repair. The following profitability data apply to five customers.

Customer Revenues Customer Costs

Marveline Burnett $300 $225

J Jackson 200 305

Roger Jones 80 75

Paul Saas 75 110

Becky Stephan 350 220

Question 1: Compute the operating income for each of the five customers. (five points)

Question 2: What options should Handy-Man Services consider in light of the customer-profitability results? (five points)

Question 3: What problems might Handy-Man Services encounter in accurately estimating the operating costs of each customer? (five points)

Explanation / Answer

1.Operating income Marveline Burnett =$300- $225 =$75 Operating income J Jackson 200 305 = -$105 Operating income Roger Jones 80 75 = $5 Operating income Paul Saas 75 110 = -$35 Operating income Becky Stephan =350- 220 =$130 2. Handy-Man Services should consider Becky Stephan in light of the customer-profitability results because of highest operating income. 3. Handy-Man Services will have difficulty in estimating the fixed cost for each customer which will ultimately affect the profitability

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