Reference no: EM133042031
Question - Pharoah Horticulture provides and maintains live plants in office buildings. The company's 916 customers are charged $32 per month for this service, which includes weekly watering visits. The variable cost to service a customer's location is $19 per month. The company incurs $2,490 each month to maintain its fleet of four service vans and $3,392 each month in salaries. Pharoah pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions.
Required -
(a) Prepare Pharoah's contribution format income statement for the month.
(b) What is the expected monthly operating income if 190 customers are added?
(c) Mr. Pharoah is exploring options to reduce the annual bookkeeping costs.
Option 1: Renegotiate the current contract with the bookkeeping service to pay a flat fee of $10,212 per year plus $1 per customer per month.
Option 2: Hire a part-time bookkeeper for $18,428 per year to handle the invoicing and simple accounting. He would need to pay $6,700 per year to have taxes and year-end financial statements prepared.
Compare the current bookkeeping cost with the two options at customer levels of 916, 1,936, and 1,972.
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