factors that fluctuate with the economy: the contribution margin associated with each service call and the number of customers who will request lawn service. Looking at next year, the owner develops the following estimates of contribution margin (price less variable cost of the service, including labor) and the estimated number of service calls. Although the owner understands that it is not strictly true, the owner assumes that the cost of fuel and the number of customers are independent. Contribution Margin per Service Call Scenario Excellent Fair Poor Number of Variable cost) Service Calls (Price - $ 50 40 12 10,950 8,500 6,200 In addition to the variable costs of service, the owner estimates that other costs are $63,000 plus $8 for each service call in excess of 5,800 calls. Annual administrative and marketing costs are estimated to be $53,000 plus 10 percent of the contribution margin. Required: Use a spreadsheet to prepare an analysis of the possible operating income for Lamphere Lawn Care similar to that in Exhibit 13.16. What is the range of possible operating incomes? Contribution Margin Per Number of Service Calls Service Call Total Contribution Margin Other Costs Marketing and Administrative Operating Profit (Loss) Excellent $ 50 10,950 Fair $ 40 10,950 Poor 12 10,950 Excellent $ 50 8,500 Fair $ 40 8,500 Poor $ 12 8,500 Excellent $ 50 6,200 Fair $ 40 6,200
factors that fluctuate with the economy: the contribution margin associated with each service call and the number of customers who will request lawn service. Looking at next year, the owner develops the following estimates of contribution margin (price less variable cost of the service, including labor) and the estimated number of service calls. Although the owner understands that it is not strictly true, the owner assumes that the cost of fuel and the number of customers are independent. Contribution Margin per Service Call Scenario Excellent Fair Poor Number of Variable cost) Service Calls (Price - $ 50 40 12 10,950 8,500 6,200 In addition to the variable costs of service, the owner estimates that other costs are $63,000 plus $8 for each service call in excess of 5,800 calls. Annual administrative and marketing costs are estimated to be $53,000 plus 10 percent of the contribution margin. Required: Use a spreadsheet to prepare an analysis of the possible operating income for Lamphere Lawn Care similar to that in Exhibit 13.16. What is the range of possible operating incomes? Contribution Margin Per Number of Service Calls Service Call Total Contribution Margin Other Costs Marketing and Administrative Operating Profit (Loss) Excellent $ 50 10,950 Fair $ 40 10,950 Poor 12 10,950 Excellent $ 50 8,500 Fair $ 40 8,500 Poor $ 12 8,500 Excellent $ 50 6,200 Fair $ 40 6,200
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Lamphere Lawn Care provides lawn and gardening services. The price of the service is fixed at a flat rate for each service, and most
costs of providing the service are the same, given the similarity in the lawns and lots. The owner budgets income by estimating two
factors that fluctuate with the economy: the contribution margin associated with each service call and the number of customers who
will request lawn service. Looking at next year, the owner develops the following estimates of contribution margin (price less variable
cost of the service, including labor) and the estimated number of service calls. Although the owner understands that it is not strictly
true, the owner assumes that the cost of fuel and the number of customers are independent.
Contribution Margin per Service Call
Scenario
Excellent
Fair
Poor
(Price -
$ 50
Variable cost) Service Calls
40
12
Number of
10,950
8,500
6,200
In addition to the variable costs of service, the owner estimates that other costs are $63,000 plus $8 for each service call in excess of
5,800 calls. Annual administrative and marketing costs are estimated to be $53,000 plus 10 percent of the contribution margin.
Required:
Use a spreadsheet to prepare an analysis of the possible operating income for Lamphere Lawn Care similar to that in Exhibit 13.16.
What is the range of possible operating incomes?
Contribution
Margin Per
Number of
Service Calls
Service Call
Total
Contribution
Margin
Other Costs
Marketing and
Administrative
Operating
Profit (Loss)
Excellent
$
50
10,950
Fair
$
40
10,950
Poor
$
12
10,950
Excellent
$
50
8,500
Fair
$
40
8,500
Poor
$
12
8,500
Excellent
$
50
6,200
Fair
$
40
6,200
Poor
$
12
6,200
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