Paradise Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee's territory as a business segment. The company incurs variable costs that include the employees' wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July: Paradise Pool Cleaning Service Income Statement for the month Ended July 31, 2020 Benton McMillian Faulkner Total Service Revenue $ 4,000 $ 3,000 $ 3,500 $ 10,500 Variable Costs 1,600 1,500 2,100 5,200 Contribution Margin 2,400 1,500 1,400 5,300 Fixed Costs 3,000 Operating Income $ 2,300 Requirements 1. Calculate the contribution margin ratio for each business segment. 2. The business segments had the following numbers of customers: Benton, 80; McMillian, 60; and Faulker, 70. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment. 3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?
Paradise Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee's territory as a business segment. The company incurs variable costs that include the employees' wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July: Paradise Pool Cleaning Service Income Statement for the month Ended July 31, 2020 Benton McMillian Faulkner Total Service Revenue $ 4,000 $ 3,000 $ 3,500 $ 10,500 Variable Costs 1,600 1,500 2,100 5,200 Contribution Margin 2,400 1,500 1,400 5,300 Fixed Costs 3,000 Operating Income $ 2,300 Requirements 1. Calculate the contribution margin ratio for each business segment. 2. The business segments had the following numbers of customers: Benton, 80; McMillian, 60; and Faulker, 70. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment. 3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Using variable costing, service company
Paradise Pool Cleaning Service provides pool cleaning services to residential
customers. The company has three employees, each assigned to specific
customers. The company considers each employee's territory as a business
segment. The company incurs variable costs that include the employees' wages,
pool chemicals, and gas for the service vans. Fixed costs include depreciation on
the service vans. Following is the income statement for the month of July:
Paradise Pool Cleaning Service Income Statement
for the month Ended July 31, 2020
Benton
McMillian
Faulkner
Total
Service Revenue
$ 4,000
$ 3,000
$ 3,500
$ 10,500
Variable Costs
1,600
1,500
2,100
5,200
Contribution Margin
2,400
1,500
1,400
5,300
Fixed Costs
3,000
Operating Income
$ 2,300
Requirements
1. Calculate the contribution margin ratio for each business segment.
2. The business segments had the following numbers of customers: Benton, 80;
McMillian, 60; and Faulker, 70. Compute the service revenue per customer,
variable cost per customer, and contribution margin per customer for each
business segment.
3. Which business segment was most profitable? List some possible reasons why
this segment was most profitable. How might the various reasons affect the
|company in the long term?
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