Pet Palace provides two types of services to dog owners: grooming and training. All company personnel can perform each service equally well. To expand sales and market share, Pet Palace's manager, Jim Jones, relies heavily on radio and billboard advertising, but the 2010 advertising budget is expected to be very limited. Information on projected operations for 2010 follows.
Grooming Training
Revenue per billable hour $50 $70
Variable cost of labor $20 $41
Material cost per billable hour $6 $7
Allocated fixed cost per year $250,000 $260,000
Projected billable hours for 2010 30,000 20,000
a. What is Pet Palace's projected pre-tax profit (or loss) for 2010?
b. If $1 spent on advertising could increase grooming revenue by $20 or training revenue by $20, on which service should the advertising dollar be spent?
c. If $1 spent on advertising could increase either grooming billable time or training billable time by 1 hourr, on which service should the advertising dollar be spent?