Question

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

	Subscribers			Service calls (per subscriber)
March		450			0.6
April		550			0.8
May		1,500			1.4
June		1,650			2.6
July		1,650			3.3
August		1,400			2.8

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

Required:

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

Answer 1

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