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Question: Varmit-B-Gone is a pest control service that operates in a suburban neighborhood. The company att...

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:

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.

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.)

Subscribers Service calls (per subscriber) March 950 0.6 April 1,050 0.9 May 1,750 1.5 June 1,950 2.5 July 1,950 3.0 August 1,500 2.4 VARMIT-B-GONE Budgeted Income Statement For the Month of September Service costs: Total service costs Marketing and administrative: Total marketing and administrative costs$ Total costs

Explanation / Answer

VARMIT-B-GONE Budgeted Income Statement For the Month of September Revenue from Service (Note 1) 2,07,360 Service costs: Variable Cost (20,000/3,600*2,592)      14,400 Maintenance and repair (18000X101%)      18,180 Depreciation (Fixed)      38,000 Total Service Costs      70,580 Marketing and Administrative: Marketing (Variable) (10,500/3600*2,592)        7,560 Administrative (Fixed) (51000X105%)      53,550 Total Marketing and Administrative Costs:      61,110 Total Costs 1,31,690 Net Income      75,670 Note: 1. Revenue for the month of September Subscribers (1500 X90%)        1,350 Service calls (per subscribers) (2.4 X80%)           1.92 Total Service calls (1350X1.92) 2,592 Average price per service call              80 Revenue (2,592X80) 2,07,360 1. Revenue for the month of August Total Service calls (1500X2.4)        3,600 Revenue (3600X80) 2,88,000

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