Kendall & Floyd provides landscaping services in Eastvale. Sara Kendall, the owner, is concerned about the recent losses the company has incurred and is considering dropping its yard cleanup services, which she feels are marginal to the company’s business. She estimates that doing so will result in lost revenues of $125,000 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, Sara estimates that the company will save 20 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities. The income statement before dropping the yard cleanup service follows.

Required

a. Prepare a report of the differential costs and revenues if the yard cleanup service is discontinued. 

b. Should Sara discontinue the lawn service?

c. Are there factors other than the differential costs and revenues that Sara should consider?

Transcribed Image Text:

123 A KENDALL & FLOYD Annual Income Statement (Before Dropping Yard Cleanup Services) 3 4 5 Sales revenue...... 6 Costs 7 Equipment leases. 8 Labor.... 9 Utilities.... 10 Rent....... 11 Other costs.. 12 Manager's salary.. 13 Total costs........ 14 Operating profit (loss).......... 15 $ $ $ GA GA B $ 684,000 270,000 216,000 36,000 72,000 36,000 90,000 720,000 (36,000)