Mesa Window Washing is a family owned operating out of Mesa. For its services, the company has always charged a flat fee per hundred square feet of windows washed. The total revenue is $560,000 (current fee is $28 per hundred square feet x 20,000 hundred square feet). The cost of operating the company for the year is $430,000, which includes the following costs:

WAGES		$ 150,000
CLEANING SUPPLIES		$ 40,000
CLEANING EQUIP DEPREC		$ 20,000
VEHICLE EXPENSES		$ 80,000
OFFICE EXPENSES		$ 60,000
PRESIDENTS COMPENSATION		$ 80,000
TOTAL COST		$ 430,000

Out-of-town jobs represent 25 percent of the companys business (i.e.500 jobs). Assume that the average size is the same for in-town and out-of-town job. The company current uses the contribution margin approach and allocates wages, cleaning supplies, cleaning equipment depreciation, and vehicle expenses on the basis of square feet. Do not consider the resource consumption information for the contribution margin approach, just allocate these expenses to each customer class.

It takes of an hour to clean 100 square feet of windows and the wage rate is currently $10.00 per hour (20,000 x .75 x $10.00 = $150,000 of wages).

Office expenses and the presidents compensation are currently treated as fixed cost for the contribution margin approach.

Develop a contribution margin income statement for the total company, and break out the contribution margin dollars for out-of-town customers and in-town customers in two additional columns. The contribution margin rate should be the same for both in-town and out-of-town customers. Since office expenses and the presidents compensation are currently treated as fixed expenses, they can only the shown in the total company column. However, there is some question about whether the company is actually making money on jobs for some customers particularly those located in remote locations which average 75 miles round trip. In-town jobs average 15 miles round trip. You have been asked to investigate this question using activity-based costing. After some discussion, four activity pools seem to be appropriate. The activity pools and their activity measures appear below:

ACTIVITY COST POOL	ACTIVITY MEASURE		ACTIVITY FOR YEAR
CLEANING WINDOWS	SQ FEET CLEANED (100'S)		20,000 HUNDRED SQ FT
TRAVEL TO JOBS	MILES DRIVEN		60,000 MILES
JOB SUPPORT	NUMBER OF JOBS		2000 JOBS
OTHER (COSTS OF IDLE CAPACITY AND	NONE		NOT APPLICABLE
ORGANIZATION SUSTAINGING COSTS)

Resource consumption is distributed across activities as follows:
	CLEANING WINDOWS	TRAVEL TO JOBS	JOB SUPPORT	OTHER	TOTAL
WAGES	70%	20%	0%	10%	100%
CLEANING SUPPLIES	100%	0%	0%	0%	100%
CLEANING EQUIPMENT DEPREC	80%	0%	0%	20%	100%
VEHICLE EXPENSES	0%	60%	0%	40%	100%
OFFICE EXPENSES	0%	0%	45%	55%	100%
PRESIDENT'S COMPENSATION	0%	0%	40%	60%	100%
*JOB SUPPORT IS RECEIVING CALLS FOR CUSTOMERS AT HOME OFFICE, SCHEDULING JOBS, BILLING, ISSUES

Required: 1. Prepare a contribution margin income statement

2. Compute the cost of both in-town and out-of-town customers using the activity-based costing system. Using Table 1 to prepare the first-stage allocation of costs to the activity pools. Use Table 2 as a guide to compute the rates for the activity cost pools. (Include these as attachments to your report.)

3. a. Present the costs and margin earned from the out of town versus in town business using activity based costing (ABC).

b. Compare ABC method with the contribution margin approach.

c. Discuss two options which the company should consider in their pricing policy, with possible implications of each option for the business.

d. Make a recommendation as to which option you believe will have the greatest long-term impact on profitability. In your memo you are expected to fully explain the reasons for your recommendation, including addressing any nonfinancial/non-accounting reasons.

**NOTE** I really only need help with #3. I have done all the calculations, but I have included the other questions in case you need it with recommendations.