Commitment and consumption of activity resources Loren s Lawn and Gar- LO 1, 2, 3 dening performs various lawn and garden maintenance activities, including lawn mowing, tree and shrub pruning, fertilizing and treating for pests. Unlike other lawn and garden businesses in the city, Loren also specializes in land¬ scape design and planting. Loren is pleased that his design specialty is so much in demand. However, he'is concerned because profits have been falling even though sales have been growing over the past few years. In an effort to better understand why profits are falling, Loren prepared the product line in¬ come statement below.

The lawn mowing business involves mowing lawns and trimming edges for customers who generally sign up for the season and pay a flat fee based on surface area mowed and trimmed. The layout design business involves both designing a garden and lawn layout and installing the design. Other mainte¬ nance includes tree and shrub pruning and application of chemicals. The di¬ rect costs for each line of business are the costs of the materials and wages of the people who work in that line of business. The remaining costs consist mainly of equipment costs, but also include office costs. After some delibera¬ tion, Loren decided to allocate the remaining costs of $375,000 on the basis of revenue, reasoning that revenue is a measure of equipment use.
REQUIRED (a)Based on the product line income statement above, which business is Loren likely to focus his efforts on? What is the likely result?
A further analysis of the allocated costs produced the information below. General business costs are $50,000, and the remaining $325,000 are equip¬ ment costs. The trucks are shared equally by all the segments, but the other equipment is used by only one segment.

(b) Prepare a new product line income statement similar to Exhibit 3 13.

(c) What advice do you have for Loren?

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Revenues Direct Costs Allocated Costs Profit LOREN'S LAWN AND GARDEN PRODUCT LINE INCOME STATEMENT LAWN LAYOUT MOWING DESIGN OTHER MAINTENANCE TOTAL $287,500 $218,750 $312,500 $818,750 $156,250 $ 70,000 $181,250 $131,679 $100,191 $143,130 $407,500 $375,000 -$ 429 $ 48,559 -$ 11,880 $ 36,250