Colise Services is a repair-service company specializing in small household jobs
ID: 2456362 • Letter: C
Question
Colise Services is a repair-service company specializing in small household jobs. Each client pays a fixed monthly service fee based on the number of rooms in the house. Records are kept on the time and material costs used for each repair. The following profitability data apply to five customers:
Customer Revenues Customer Cost
Marveline Burnett 360 270
J Jackson 240 366
Roger Jones 96 90
Paul Saas 90 132
Becky Stephan 420 264
Required:
a. Compute the operating income for each of the five customers.
b. What options should coliseServices consider in light of the customer profitability results?
c. What problems might colise Services encounter in accurately estimating the operating costs of each customer?
Explanation / Answer
a) Customer Name Customer Revenues Customer Cost Operating income/(Loss) Marveline Burnett 360.00 270.00 90.00 J Jackson 240.00 366.00 (126.00) Roger Jones 96.00 90.00 6.00 Paul Saas 90.00 132.00 (42.00) Becky Stephan 420.00 264.00 156.00 Total 1,206.00 1,122.00 84.00 b) Since the company is incurring losses in the individual profit analysis of many customers, it would be advisable to change the methodlogy for charging a monthly fees. Currently the company is charging service fees based on the number of rooms in the house which is not a practical approach of correlating it with the cost that may be incurred on maintenance so it would have to look for a more practical approach for c harging service cost from its customers. Service fees should be charged based on the Area of the house (In Sq feet or Sq mtr) so that a more practical size of the house can be arrived at. In addition to the size of the house, company can also take into account the other factors such as number of members in the house, age group, no., type and age of equipements etc. Also going by the data, it can be observed that the company is incurring losses in the projects wherever the revenues are significantly lower and is earning profits wherever the revenues are higher. So the company should prefer accepting only the projects covering a significant amount of revenue. c) Based on the available options the company may face certain problems in estimating the operating cost of different customers such as unavailablity of the accurate information, collation of all the data, assigning weightage to each of the factors considered for estimating cost etc. Despite the challenges faced in collecting and collating the information, the company should adopt a better alterantive of charging the service fees so that it does not have to bear losses in the project undertaken at individual level