This one is stalling me. If you are able to help me with the answer, can you please explain how to figure it?
Norvell Lawn Care offers three lawn care services to its clients. The revenues and costs associated with each service follow:
|
Full Service
|
Complete Service
|
Minimum Service
|
|
Revenues
|
$ 60,000
|
$ 72,000
|
$48,000
|
|
Cost of Sales
|
42,000
|
43,200
|
25,000
|
|
Product Margin
|
18,000
|
28,800
|
23,000
|
|
Facility-sustaining costs
|
20,000
|
20,000
|
20,000
|
|
Profit
|
(2,000)
|
8,800
|
3,000
|
Norvell wants to discontinue Full Service. The facility-sustaining costs are related to depreciation on the equipment and insurance and are allocated equally across all product lines. Cost of sales includes wages, gasoline, and lawn chemicals consumed. Should Norvell drop Full Service? Why?