ServicePro provides two kinds of services. During the most recent accounting period, the two service lines...
ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results:
| Service 1 | Service 2 | ||||||
| Service revenue | $ | 200,000 | $ | 95,000 | |||
| Unit-level materials | $ | (44,000 | ) | $ | (26,000 | ) | |
| Unit-level labor | $ | (54,000 | ) | $ | (38,000 | ) | |
| Product-level selling & administrative costs | $ | (34,000 | ) | $ | (27,500 | ) | |
| Company wide facility-level costs | $ | (5,000 | ) | $ | (5,000 | ) | |
| Net income (loss) | $ | 63,000 | $ | (1,500 | ) | ||
If the company stops providing Service 2:
rev: 03_21_2018_QC_CS-122066
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The company's income will increase by $3,500 per year.
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The company's income will increase by $4,500 per year.
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The company's income will decrease by $4,500 per year.
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The company's income will decrease by $3,500 per year.
Homework Answers
Ans. Option 4th
Explanation and calculation: If the company stops providing service 2 it means the company would generate a loss of revenue.
Lost revenue. $95,000
Less: Avoided costs:
Unit level materials. -$26,000
Unit level labor. -$38,000
Product level selling and administrative costs. -$27,500
Total avoided costs. -$91,500
Decrease in Net income. $3,500
*If the company stops providing service 2 unit level cost would be affected, but the company wide facility level cost would remain the same.
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