Pharoah Horticulture provides and maintains live plants in office buildings. The companys 874 customers are charged $33 per month for this service, which includes weekly watering visits. The variable cost to service a customers location is $17 per month. The company incurs $2,448 each month to maintain its fleet of four service vans and $3,468 each month in salaries. Pharoah pays a bookkeeping service $2 per customer each month to handle all invoicing and accounting functions.

1. Mr. Pharoah is exploring options to reduce the annual bookkeeping costs.

Option 1:	Renegotiate the current contract with the bookkeeping service to pay a flat fee of $10,365 per year plus $1 per customer per month.
Option 2:	Hire a part-time bookkeeper for $19,896 per year to handle the invoicing and simple accounting. He would need to pay $5,200 per year to have taxes and year-end financial statements prepared.

Compare the current bookkeeping cost with the two options at customer levels of 874, 1,848, and 1,990.

874 1,848 1,990 $ 20976.00 $ 44,352.00 $ 35,760.00 Current cost $ 20853.00 $ 32,541.00 $ 28,245.00 Option 1 $ 25,096.00 A 25,096.00 $ 25,096.00 Option 2