ServicePro provides two kinds of services. During the most recent accounting per
ID: 2469260 • Letter: S
Question
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
$
100,000
$
35,000
Unit-level materials
$
(24,000
)
$
(6,000
)
Unit-level labor
$
(34,000
)
$
(18,000
)
Product-level selling & administrative costs
$
(14,000
)
$
(7,500
)
Company wide facility-level costs
$
(9,000
)
$
(9,000
)
Net income
$
19,000
$
(5,500
)
If the company stops providing Service 2:
a. The company's income will increase by $4,500 per year.
b. The company's income will decrease by $4,500 per year.
c. The company's income will increase by $3,500 per year.
d. The company's income will decrease by $3,500 per year.
Service 1
Service 2
Service revenue
$
100,000
$
35,000
Unit-level materials
$
(24,000
)
$
(6,000
)
Unit-level labor
$
(34,000
)
$
(18,000
)
Product-level selling & administrative costs
$
(14,000
)
$
(7,500
)
Company wide facility-level costs
$
(9,000
)
$
(9,000
)
Net income
$
19,000
$
(5,500
)
Explanation / Answer
Ans- d.The company's income will decrease by $3,500 per year
company current income from two services (19000-5500)$13500
if the company stops providing Service 2
then comapny net income =total income-fixed cost Company wide facility-level
=19000-9000
=$10000
then the company income decease (13500-10000)$3500
Service 1 Service 2 Service revenue $ 1,00,000 $ 35,000 Unit-level materials $ -24000 $ -6000 Unit-level labor $ -34000 $ -18000 Product-level selling & administrative costs $ -14000 $ -7500 Company wide facility-level costs $ -9000 $ -9000 Net income $ 19,000 $ -5500Related Questions
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