Question

KC Services provides landscaping services in Edison Kate Chen, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the company's business. She estimates that doing so will result in lost revenues of $60,000 per year (including the lost tree business from customers who use the company for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without the lawn business Kate estimates that the company will save 17 percent of the equipment leases, labor, and other costs. She also expects to save 20 percent on rent and utilities Required: a. Prepare a report of the differential costs and revenues of the lawn service is discontinued (Enter loss amount with minus sign.) KC SERVICES Annual Income Statement Before Dropping After Dropping Service Service 3450001 Sales revenue Equipmentlases Labar Rent Other cost Manager's Salary Total costs Operating pes 225.000 35 5001 12,000 30.750 18.500 75.000 396,750 S (51.750) 0 S S ) b. Should Kate discontinue the lawn service? Yes No

Answer 1

a)

	KC Services
	Annual income statement
	Before Droping Services	After Droping services
Sales Revenue	$345000	$285000
Costs
Equipment Leases	225000	186750
Labour	35500	29465
Utilities	12000	9600
Rent	30750	24600
Other costs	18500	15355
Manager's Salary	75000	75000
Total Costs	$396750	$340770
Operating Profit/Loss	$-51750	$-55770

b)No