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Chapter 21: Q-21-15 (page 1169)

How do service companies differ from manufacturing companies?

Short Answer

Expert verified

Answer

Service companies do not produce any product.

Step by step solution

01

Definition of Service Company

Companies that provide services to earn revenue are known as services companies that do not produce any product or goods.

02

How do service companies differ from manufacturing companies

Service companies do not have any inventory and cost of goods sold while manufacturing companies have an inventory of raw material and fixed goods as they are involved in the manufacturing of goods whereas service companies provide only services.

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Most popular questions from this chapter

Using variable costing, service company

Professional 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鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� 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:

Requirements

  1. Calculate the contribution margin ratio for each business segment.
  2. The business segments had the following numbers of customers: Birman, 60; Meech, 70; and Frond, 40. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.
  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?

Question: Using variable costing, service company

Divine 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鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� 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 August:

Requirements

1. Calculate the contribution margin ratio for each business segment.

2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.

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?

Analyzing profitabilityFather Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs Sales Price \( 800 \) 70 Variable manufacturing costs 60025Sales commission (10%) 807Relative Furniture has three sales representatives: Adam, Ben, and Caleb. Adam sold 100 tables with 6 chairs each. Ben sold 110 tables with 4 chairs each. Caleb sold 80 tables with 8 chairs each.

Requirements

1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).

2. Which sales representative has the highest contribution margin ratio? Explain why.

Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.

Requirements:

  1. Which costing method produces the highest operating income? Explain why.
  2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why

Question: Preparing absorption costing income statements, production exceeds sales

Refer to Exercise E21-16.

Requirements:

  1. Prepare the April income statement using absorption costing.
  2. Determine the product cost per unit and the total cost of the 1,000 cases in Finished Goods Inventory as of April 30.
  3. Is the April 30 balance in Finished Goods Inventory higher or lower than variable costing? Explain why
See all solutions

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