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 (Price - Variable cost) Scenario Excellent Fair Poor Excellent Fair Poor Excellent Fair Poor Excellent $53 43 12 In addition to the variable costs of service, the owner estimates that other costs are $51,000 plus $8 for each service call in excess of 7,000 calls. Annual administrative and marketing costs are estimated to be $65,000 plus 10 percent of the contribution margin. Fair Poor 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 Service Call $ $ $ $ $ $ $ $ $ 53 43 12 53 43 Number of Service Calls 12 53 11,250 8,800 6,500 43 12 Number of Service Calls 11,250 11,250 11,250 8,800 8,800 8,800 6,500 6,500 6,500 Total Contribution Margin Other Costs Marketing and Administrative Operating Profit (Loss) $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0
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 (Price - Variable cost) Scenario Excellent Fair Poor Excellent Fair Poor Excellent Fair Poor Excellent $53 43 12 In addition to the variable costs of service, the owner estimates that other costs are $51,000 plus $8 for each service call in excess of 7,000 calls. Annual administrative and marketing costs are estimated to be $65,000 plus 10 percent of the contribution margin. Fair Poor 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 Service Call $ $ $ $ $ $ $ $ $ 53 43 12 53 43 Number of Service Calls 12 53 11,250 8,800 6,500 43 12 Number of Service Calls 11,250 11,250 11,250 8,800 8,800 8,800 6,500 6,500 6,500 Total Contribution Margin Other Costs Marketing and Administrative Operating Profit (Loss) $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 13-51 (Algo) Sensitivity Analysis (LO 13-8)
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
(Price -
Variable
cost)
$ 53
Scenario
Excellent
Fair
Poor
Excellent
Fair
Poor
Excellent
Fair
Poor
Excellent
Fair
Poor
In addition to the variable costs of service, the owner estimates that other costs are $51,000 plus $8 for each service call in excess of
7,000 calls. Annual administrative and marketing costs are estimated to be $65,000 plus 10 percent of the contribution margin.
Contribution
Margin Per
Service Call
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?
$
$
$
$
$
43
12
$
$
$
$
Number of
Service Calls
11,250
8,800
6,500
53
43
12
53
43
12
53
43
12
Number of
Service Calls
11,250
11,250
11,250
8,800
8,800
8,800
6,500
6,500
6,500
Total
Contribution
Margin
Other Costs
Marketing and
Administrative
Operating
Profit (Loss)
$
$
$
$
$
$
$
$
$
0
0
0
0
0
0
0
0
0
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