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Varmit-B-Gone is a pest control service that operates in a suburban neighborhood. The company attempts to...

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Accounting

Varmit-B-Gone is a pest control service that operates in asuburban neighborhood. The company attempts to make service callsat least once a month to all homes that subscribe to its service.It makes more frequent calls during the summer. The number ofsubscribers also varies with the season. The number of subscribersand the average number of calls to each subscriber for the monthsof interest follow:

SubscribersService calls (per subscriber)
March4500.6
April5500.8
May1,5001.4
June1,6502.6
July1,6503.3
August1,4002.8


The average price charged for a service call is $60. Of the servicecalls, 30 percent are paid in the month the service is rendered, 60percent in the month after the service is rendered, and 8 percentin the second month after. The remaining 2 percent isuncollectible.


Required:

What are Varmit-B-Gone’s expected cash receipts for May, June,July, and August?

Answer & Explanation Solved by verified expert
3.7 Ratings (509 Votes)

Calculation of revenue:

Month Calculation Revenue
March 0.6 calls * 450 subscribers * $60 $16,200
April 0.8 calls * 550 subscribers * $60 $26,400
May 1.4 calls * 1500 subscribers * $60 $126,000
June 2.6 calls * 1650 subscribers * $60 $257,400
July 3.3 calls * 1650 subscribers * $60 $326,700
August 2.8 calls * 1400 subscribers * $60 $235,200

Collection schedule:

May June July August
March sales $1,296
($16,200 * 8%)
April sales $15,840 $2,112
($26,400 * 60%) ($26,400 * 8%)
May sales $37,800 $75,600 $10,080
($126,000 * 30%) ($126,000 * 60%) ($126,000 * 8%)
June sales $77,220 $154,440 $20,592
($257,000 * 30%) ($257,000 * 60%) ($257,000 * 8%)
July sales $98,010 $196,020
($326,700 * 30%) ($326,700 * 60%)
August sales $70,560
($235,200 * 30%)
Total cash receipt $54,936 $154,932 $262,530 $287,172

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