Reference no: EM133134921

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 $64,500 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 16 percent of the equipment leases, labor, and other costs. She also expects to save 26 percent on rent and utilities.

KC SERVICES Annual Income Statement Before Dropping Service

Sales revenue $330,000

Costs Equipment leases 230,000

Labor 25,000

Utilities 18,700

Rent 28,200

Other costs 19,000

Manager's Salary 71,000

Total costs $391,900

Operating profit (loss) $(61,900)

Required -

a. Prepare a report of the differential costs and revenues if the lawn service is discontinued.

b. Should Kate discontinue the lawn service?