5.00 points Varmit-B-Gone is a pest control service that operates in a suburban

Question

5.00 points 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 2.100 24 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. s 29.000 s25,000 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 Required Prepare a budgeted income statement for September. (Round intermediate calculations to 2 decimals places.) Budgeted Income Statement

Explanation / Answer

VARMIT-B-GONE Budgeted Income Statement For the Month of September Service revenue 307200 Less service costs: Variable costs 23200 Maintenance and repair 27270 Depreciation (fixed) 47000 97470 Total service costs Marketing and administrative: Marketing (variable) 20000 Administrative (fixed) 73500 Total marketing and administrative costs 93500 Total costs 190970 Net operating income 116230 Calculations: Number of subscribers = 2000 - 10% = 2000 - 200= 1800 Number of service calls per subscriber = 2.4 - 20% = 2.4 - 0.48 = 1.92 Total number of service calls = 2000 x 1.92 = 3840 Average price per service call = $80 Service revenue = 3840 x $80 = $307200 Total number of service calls in August = 2000 x 2.4 = 4800 Variable service costs = $29000/4800 x3840 = $23200 Maintenance and repair = $27000 + 1% = $27000 + $270 = $27270 Variable marketing costs = $25000 /4800 x 3840 = $20000 Administrative (fixed) = $70000 + 5% = $70000 + $3500 = $73500

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