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Accounting: Income statement.

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Pest B-Gone is a pest control service that operates in a suburban neighborhood. The company attempts to make service calls at least once per month to all homes that subscribe to its service. It makes more more frequent calls during the summer. The number of subscribers also varies with the season.

Subscribers Service calls per subscriber
March 600 .6
April 700 .9
May 1400 1.5
June 1600 2.5
July 1600 3.0
August 1500 2.4

The average charge for a service call is $80. Of the service calls, 30% are paid in the month of service is rendered. 60% in the month after the service is rendered, and 8% in the second month after. The remaining 2% is un-collectible.

They estimate that the number of subscribers in September should fall 10% below august levels, and the number of service calls per subscriber should decrease by an estimated 20%. The following information is available for costs incurred in august. all costs except depreciation are paid in cash.

Serviced costs
variable costs.................................. $24,000
Maintenance and repair......................22,000
depreciation fixed...............................42,000
total................................................ 88,000

Marketing and administrative costs
Marketing variable $14,500
Administrative fixed 55,000
total 69,500

Total costs 157,500

Variable service and marketing costs change with volume. Fixed depreciation will remain the same, but fixed admin. costs will increase by 5% beginning September 1. Maintenance and repair are provided by contract, which calls for a 1% increase in September.

REQUIRED:

Prepare a budgeted income statement for September.

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Solution Summary

The problem set deals with preparing the income statement from provided information.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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