Wonderland Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee's territory as a business segment. The company incurs variable costs that include the employees' wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July: (Click the icon to view the income statement.) Read the requirements. Requirement 1. Calculate the contribution margin ratio for each business segment. Contribution margin ratio Benton = % Morton = % Fitz % Requirement 2. The business segments had the following numbers of customers: Benton, 110; Morton, 40; and Fitz, 70. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment Service revenue Variable costs Contribution margin per customer per customer per customer Benton Morton Fitz Requirement 3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term? The V business segment was the most profitable because the Possible reasons for the profitability of this business segment include the following: (Select all that apply.) A. Lower employee wages in the most profitable business segment B. Better routes with shorter drive times allowing more customers to be served in the most profitable business segment C. Higher revenue per customer in the most profitable business segment OD. Employees in the most profitable business segment cutting corners when performing service calls E. Lengthy routes with longer drive times allowing fewer customers to be served in the most profitable business segment F. Reducing the amount of pool chemicals used in service calls for the most profitable business segment IG. Higher employee wages in the most profitable business segment OH. Lower revenue per customer in the most profitable business segment How might the various reasons affect the company in the long term? The possible side effects of the items identified in the preceding step could be (Select all that apply.) B C. A. less fuel and maintenance costs because of lengthier routes. increased customer base due to competitive service prices. dissatisfied customers because of inadequate service. increased employee turnover because of low wages. E. highly compensated employees resulting in an increase in contribution margin. F. less fuel and maintenance costs because of efficient routes. D. I G. increased service costs because of reduced pool chemical usage causing poor water quality and additional service calls. i Data Table X Wonderland Pool Cleaning Service Income Statement For the Month Ended July 31, 2018 Benton Morton Fitz Total Service Revenue $ 11,000 $ 4,400 4,000 $ 2,000 7,000 $ 3,500 22,000 9,900 Variable Costs Contribution Margin Fixed Costs 6,600 2,000 3,500 12,100 2,500 $ 9,600 Operating Income Print None
