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:

	Subscribers			Service calls (per subscriber)
March		1,250			0.6
April		1,350			0.9
May		2,050			1.5
June		2,250			2.5
July		2,250			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	$	17,000
Maintenance and repair		15,000
Depreciation (fixed)		35,000
Total	$	67,000
Marketing and administrative costs
Marketing (variable)	$	24,000
Administrative (fixed)		48,000
Total	$	72,000
Total costs	$	139,000

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. (Round intermediate calculations to 2 decimals places.)

VARMIT-B-GONE
Budgeted Income Statement
For the Month of September
Service costs:
Total service costs	0
Marketing and administrative:
Total marketing and administrative costs	0
Total costs	0
Operating profit	0

Answer 1

VARMIT-B-GONE
Budgeted Income Statement
For the Month of September
Revenue = (90% × 1,500) × (80% × 2.4) × $80	$         2,07,360.00
Service costs:
Variable costs ($17000 x 0.72)	$            12,240.00
Maintenance and repair (15000 x (1 + 1%)	$            15,150.00
Depreciation (fixed)	$            35,000.00
Total service costs	$            62,390.00
Marketing and administrative:
Marketing (variable) (24000 x .72)	$            17,280.00
Administrative (fixed) (48000 x (1 + 5%)	$            50,400.00
Total marketing and administrative costs	$            67,680.00
Total costs	$         1,30,070.00
Operating profit	$            77,290.00
a) Ratio of September to August volume:
September: (90% × 1,500) × (80% × 2.4) =	2592
August: 1,500 × 2.4 =	3600
Ratio of September to August volume: 2592/3600	0.72