Industrial Maids Service Ltd. (IMS) is a corporation based in Sarnia, Ontario that focuses on cleaning commercial
Question:
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?
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine