Hartland Horticulture provides and maintains live plants in office buildings. The company's 850 customers are charged $30 per month for this service, which includes weekly watering visits. The variable cost to service a customer's location is $18 per month. The company incurs $2,000 each month to maintain its fleet of four service vans and $3,000 each month in salaries. Hartland pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions.
Required:
| a. | Prepare Hartland's contribution format income statement for the month. |
| b. | What is the expected monthly operating income if 150 customers are added? |
| c. | Mr. Hartland 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 $10,200 per year plus $1 per customer per month.
Option 2: Hire a part-time bookkeeper for $18,000 per year to handle the invoicing and
simple accounting. Hartland will need to pay $5,000 per year to have taxes and year-end
financial statements prepared.
Compare the current bookkeeping cost with the two options at customer levels of 850,
1,000, and 1,100.
| d. | In addition to the bookkeeping costs incurred, what should Mr. Hartland consider |
before he makes a change in bookkeeping services?
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