Question

Varmit-B-Gone is a pest control service that operates in a suburban neighborhood. The company attempts to make service calls at least once a month to all homes that subscribe to its service. It makes more frequent calls during the summer. The number of subscribers also varies with the season. The number of subscribers and the average number of calls to each subscriber for the months of interest follow: SubscribersService calls (per subscriber) March 600 0.6 April 700 0.9 May 1,400 1.5 June 1,600 2.5 July 1,600 3.0 August 1,500 2.4 The average price charged for a service call is $80. Of the service calls, 30 percent are paid in the month the service is rendered, 60 percent in the month after the service is rendered, and 8 percent in the second month after. The remaining 2 percent is uncollectible. Varmit-B-Gone estimates that the number of subscribers in September should fall 10 percent below August levels, and the number of service calls per subscriber should decrease by an estimated 20 percent. The following information is available for costs incurred in August. All costs except depreciation are paid in cash.

Service costs
Variable costs $ 24,000
Maintenance and repair 22,000
Depreciation (fixed) 42,000
Total $ 88,000
Marketing and administrative costs
Marketing (variable) $ 14,500
Administrative (fixed) 55,000
Total $ 69,500
Total costs $ 157,500
Variable service and marketing costs change with volume. Fixed depreciation will remain the same, but fixed administrative costs will increase by 5 percent beginning September 1. Maintenance and repair are provided by contract, which calls for a 1 percent increase in September.

Required:
Prepare a budgeted income statement for September.

Answer 1

VARMIT B-GONE

BUDGETED INCOME STATEMENT

sales revenue ( 90%*1500*2.4*80%*$80) $207,360

Service cost :

variable cost $17280

Maintenance and repair 15,998

Depreciation 42,000 75,278

Gross profit 132,082

marketing and administrative cost :

Marketing (variable ) 10,440

administrative (fixed)(55,000*105%) 57,750

bad debt( 2%*207360) 4,147 72,337

net income 59,745

Step-by-step explanation:

service cost :

variable cost = (24,000/3600)*2592 = $17,280

maintenance and repairs = (22,000/3600)*2592 *101% = $15,998

Marketing cost = ($14,500/3600)*2592 = $10,440