Question

ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results: Service 1 Service 2 Service revenue $ 155,000 $ 68,000 Unit-level materials $ (35,000 ) $ (17,000 ) Unit-level labor $ (45,000 ) $ (29,000 ) Product-level selling & administrative costs $ (25,000 ) $ (18,500 ) Company wide facility-level costs $ (5,000 ) $ (5,000 ) Net income (loss) $ 45,000 $ (1,500 ) If the company stops providing Service 2:

Answer 1

The company's income will decreases by $3,500 per year.

Step-by-step explanation:

Present Net Income :

Service 1 = $45,000

Service 2 = ($1,500)

Total(old) = $45,000 + ($1,500)

= $43,500

After closing of service 2 :

Service 1 = $45,000

Company wide facility-level costs allocated to for service 2 = (5,000)

Total(new) = Service 1 present income + Company wide facility-level costs

= $45,000 + (5,000)

= $40,000

Decrease in income = Total(old) - Total(new)

= $43,500 - $40,000

= $3,500

Therefore, the company's income will decrease by $3,500 per year.