Question
Emergency Roadside Maintenance (ERSM) is an on-call mechanic and tow company that works in the area surrounding Denver, CO. The majority of ERSM customers have
Emergency Roadside Maintenance (ERSM) is an on-call mechanic and tow company that works in the area surrounding Denver, CO. The majority of ERSM customers have small vehicles that have difficulty with the steep grade of the mountain passes. ERSM also currently offers their services to large commercial vehicles. However, the commercial vehicle services have recently reflected net losses. The following infromation relates to the costs involved servicing commercial vehicles:
- Revenue: $150/service
- Direct Labor: 5 hours @ $20/hour
- Supplies (gas, other vehicle fluids): $60/service
- Office scheduling expenses (treated as allocation of fixed overhead): $60/service
- Average number of commercial services performed per month: 250
Management is considering discontinuing the commercial vehicle service segment of their business. By how much would Operating Income per month increase or decrease if this segment were dropped?
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