Polaris offers extended service contracts that provide repair and maintenance co
ID: 2415714 • Letter: P
Question
Polaris offers extended service contracts that provide repair and maintenance coverage over its products. As you complete the following requirements, assume that the Polaris services department uses many of Polaris’s existing resources such as its facilities, repair machinery, and computer systems. Write a two-page report addressing the following topics: Identify several of the variable, mixed, and fixed costs that the Polaris services department is likely to incur in carrying out its services. Assume that Polaris's services revenues are expected to grow by 25% in the next year. How do you expect the costs identified in part 1 to change, if at all? Based on your answer to part 2, can Polaris use the contribution margin ratio to predict how income will change in response to increases in Polaris's services revenues? (Cite Sources)
Explanation / Answer
Variable cost:These are the one which changes with the no of units sold. But here the case is it is service department and the variable cost they have will be no of technicians, raw material used for products sold etc
fixed cost: office rent, customer support staff, office maintenance, manager salary
If polaris service revnue increases is going to increase by 25% its variable cost going to increase in same proportion more or less but there will not be any change in fixed cost by which the contribution margin ratio increases.
Yes,they can predict how income will change based on the increase in contribution margin.