Industrial Maids Service Ltd. (IMS) is a corporation based in Sarnia, Ontario that focuses on cleaning commercial properties, which is a very competitive business. Although IMS tries to recruit highly trained employees, it is not able to pay a very high hourly salary. Cleaning services are charged to clients by the hour and the average rate is $17 per hour. Some of the cleaning done by this company is performed with larger equipment that is repaired by the company. The average employee will work an entire shift at one client's premises.

Prestige Cleaning Services Inc. (PCS) also operates a cleaning service in Sarnia but this company focuses on residential cleaning and targets large homes in high-income areas. The company is owned by a former NHL star who is very effective at securing cleaning contracts. Most of the cleaning work done by this company occurs during the day and the company is able to attract experienced cleaning staff and pay them a higher salary. Cleaning services are charged to clients by the hour and the average rate is $30 per hour. The equipment used by this company is inexpensive. Most employees will clean two or three houses during a single shift so the company owns several vehicles. Listed below are condensed income statements of the two corporations:

_____________________________________IMS............................................PCS

Service revenue.............................$1,020,000................................$900,000

Salaries expense................................600,000...................................450,000

Rent expense.......................................42,000.....................................23,000

Other operating expenses...................4,000.....................................14,000

Interest expense.................................25,000.....................................13,000

Profit before income tax.....................349,000...............................400,000

Income tax expense.............................87,250.................................100,000

Profit..................................................$ 261,750.............................$300,000

Instructions

(a) How many hours of cleaning service did each company provide to its clients?

(b) What is the average rate of pay per hour that each company pays its employees?

(c) Which company do you think uses larger facilities? Why do you think this is?

(d) Why does PCS likely have higher other operating expenses than IMS?

(e) One of the companies financed its start up by taking out a higher amount of bank loan than the other company. Which company do you think this was? Both companies are charged the same rate of interest by their banks.

(f) What is the most significant factor that makes PCS more profitable than IMS?