Oriole Horticulture provides and maintains live plants in office buildings. The company's 934 customers are charged $38 per monthfor this service, which includes weekly watering visits. The variable cost to service a customer's location is $19 per month. Thecompany incurs $2,432 each month to maintain its fleet of four service vans and $3,330 each month in salaries. Oriole pays abookkeeping service $2 per customer each month to handle all invoicing and accounting functions. Mr. Oriole is exploring options to reduce the annual bookkeeping costs.Option 1: Renegotiate the current contract with the bookkeeping service to pay a flat fee of $10,269 per year plus $1 percustomer per month.Option 2: Hire a part-time bookkeeper for $18,352 per year to handle the invoicing and simple accounting. He would need topay $5.700 per year to have taxes and year-end financial statements prepared.Compare the current bookkeeping cost with the two options at customer levels of 934, 1,381, and 1,460.Current costOption 1Option 2$$$934$$$1,381$$$1,460

Cost estimation is defined as the process of determining the cost of a product or service. This…

Oriole Horticulture provides and maintains live plants in office buildings. The company's 934 customers are charged $38 per month for this service, which includes weekly watering visits. The variable cost to service a customer's location is $19 per month. The company incurs $2,432 each month to maintain its fleet of four service vans and $3,330 each month in salaries. Oriole pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions.

Oriole Horticulture provides and maintains live plants in office buildings. The company's 934 customers are charged $38 per month for this service, which includes weekly watering visits. The variable cost to service a customer's location is $19 per month. The company incurs $2,432 each month to maintain its fleet of four service vans and $3,330 each month in salaries. Oriole pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 27E: Alard Manufacturing Company has a billing department staffed by four billing clerks. Each clerk is...

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