Reference no: EM13227286

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 850 .6 
April 950 .9 
May 1,650 1.5 
June 1,850 2.5 
July 1,850 3.0 
August 1,750 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 $ 21,000 
Maintenance and repair 19,000 
Depreciation (fixed) 39,000 

Total $ 79,000 

Marketing and administrative costs
Marketing (variable) $ 11,500 
Administrative (fixed) 52,000 

Total $ 63,500 

Total costs $ 142,500 


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.