Reference no: EM133052494

Question - Sunland Horticulture provides and maintains live plants in office buildings. The company's 950 customers are charged $40 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 $2,254 each month to maintain its fleet of four service vans and $3,300 each month in salaries. Sunland pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions.

Required -

(a) Prepare Sunland's contribution format income statement for the month.

(b) What is the expected monthly operating income if 198 customers are added?

(c) Mr. Sunland 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 $10,389 per year plus $1 per customer per month.

Option 2: Hire a part-time bookkeeper for $19,596 per year to handle the invoicing and simple accounting. He would need to pay $6,600 per year to have taxes and year-end financial statements prepared.

Compare the current bookkeeping cost with the two options at customer levels of 950, 1,510, and 1,586.