CVP, service sector, ethics. Home Cleaning Inc. is a franchiser of home cleaning operations. Each franchise operator is given exclusive rights to use the Home Cleaning Inc. name and products in a geographical area. The operator pays Home Cleaning Inc. $2,000 per month plus 20% of its monthly operating income.

Arthur Beetson, the controller of Home Cleaning Inc., has received several letters from former employees of the Tuscany franchise operator. Each letter argued that the Tuscany operator is engaging in questionable practices. Beetson investigates these claims and finds the fol- lowing:

a. The Tuscany operator employed many illegal immigrants at the rate of $8 per hour and did not pay them any benefits. Approximately 60% of the 2,500 hours billed in October 19_5 was worked by illegal immigrants. The remaining 40% of the 2,500 hours was worked by legal employees who received the standard $12 per hour ($9 per hour salary and $3 per hour fringe benefits). The accounting records accurately recorded the actual labor costs paid to each employee (including employees who were illegal immigrants) in October 19_5.

b. Customers were billed at $20 per hour. The accounting records of the Tus ,ny operator did not always record all work performed by Tuscany employees. In some cases, cus- tomers had requested extra work while the Tuscany employees were on the job. Beetson found several cases where employees agreed to do the extra work for S15 per hour if the payment was made in cash. These cash payments were not recorded as revenues of the Tuscany operator.

c. The fixed costs of the Tuscany operator were the $2,000 monthly fee to Home Cleaning Inc. and $6,000 for office costs. The variable costs were $12 per hour compensation 1 each employee and $? per hour for supplies. In addition, Tuscan' pays Home Cleai ing Inc.

20% of its month 1 ;x rating income.

Required 1. Assume that the T sea operator paid all employees the sta ird$12p< 1 ate in October 19_5. Whai

a. the breakeven . poini >r the operator in (i) hours billed to v ;ntsand( do r hi inj 0 clients

b. theoperat' incon to the Tuscany operator for the 2. 501 our- illed