Problem 1-43 (Algo) Cost Data for Managerial Purposes (LO 1-3)

KC Services provides landscaping services in Edison. Kate Chen, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the companys business. She estimates that doing so will result in lost revenues of $67,800 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, Kate estimates that the company will save 14 percent of the equipment leases, labor, and other costs. She also expects to save 29 percent on rent and utilities.

Required :

a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.)

KC SERVICES
Annual Income Statement
	Before Dropping Service	After Dropping Service
Sales revenue	$395,000
Costs
Equipment leases	290,000
Labor	30,000
Utilities	15,500
Rent	21,500
Other costs	16,800
Manager's Salary	60,000
Total costs	$433,800
Operating profit (loss)	$(38,800)

b. Should Kate discontinue the lawn service?

• Yes

• No