Green Wings, Corp. pays EH, Inc. $1,360 for an annual service contract on its kitchen equipment. In addition, Green Wings pays $35 each time a technician is called to work on any of the equipment. No other costs (material or labor) are incurred for the service calls under the service contract.
Required:
(a) Prepare a flexible budget for Green Wings’s service contract costs if technicians are called 12, 18, and 24 times per year.
(b) Determine the cost per service call for each level of service listed in part (a). Why does the cost per service call change?
(c) The average price of a service call without the contract is$95.At what number of service calls is Green Wings saving money by having the service contract?
(d) Why would Green Wings enter into this service contract if the company only expects to have 15 service calls per year?