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Landscaping Pros (LP) is a yard and lawn maintenance company. Up to now, they have received significant business from both commercial and private service contracts.
Landscaping Pros (LP) is a yard and lawn maintenance company. Up to now, they have received significant business from both commercial and private service contracts. However, management is concerned that the segment that services private homes has been experiencing losses, and is considering discontinuing that segment of the company. Following is financial information for this past month: Commercial Service Line: Revenue from commercial: $20,000 Contribution margin percentage from commercial: 50% Operating incomel (loss) from commercial: $5,000 Private Service Line: Revenue from private: $1,000 Contribution margin percentage from private: (5%) Operating incomel (loss) from private: ($900) Management is concerned that offering services to Private sector line is negatively impacting the profits of the company. Therefore, management at LP want to discontinue the Private sector line services. They believe that the storage capacity and other fixed resources currently used for Private sector line services could be used to service more Commercial services and generate profits similar to current client contracts. New clients are proportional to the fixed costs required by the service. By how much would Operating Income increase or decrease if the individual services were discontinued
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