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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

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 31P: Haysbert Company provides management services for apartments and rental units. In general, Haysbert...
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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
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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