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 $59,000 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 14 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities. Required: a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.) KC SERVICES Annual Income Statement Before Dropping After Dropping Services Service Sales revenue $382,000 _______? ______ Costs ______________ _______________ Equipment leases 300,000 ________? ______ Labor 18,000 ? Utilities 12,500 ? Rent 10,750 ? Other costs 15,000 ? Manager’s Salary 38,900 ? Total costs 395,150 ? Operating profit (loss) -13,150 ? b. Should Kate Discontinue the lawn service? _____ Yes _____

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 $59,000 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 14 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities. Required: a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.) KC SERVICES Annual Income Statement Before Dropping After Dropping Services Service Sales revenue $382,000 _? Costs _ Equipment leases 300,000 ? Labor 18,000 ? Utilities 12,500 ? Rent 10,750 ? Other costs 15,000 ? Manager’s Salary 38,900 ? Total costs 395,150 ? Operating profit (loss) -13,150 ? b. Should Kate Discontinue the lawn service? _ Yes ___

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter5: Gross Income: Exclusions

Section: Chapter Questions

Problem 44P

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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 $59,000 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 14 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities.

Required:

a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.)

KC SERVICES

Annual Income Statement

Before Dropping After Dropping

Services Service

Sales revenue $382,000 _______? ______

Costs ______________ _______________

Equipment leases 300,000 ________? ______

Labor 18,000 ?

Utilities 12,500 ?

Rent 10,750 ?