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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:

Respuesta :

Answer:

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

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.

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