Question

DeLuxe Limo Service has the following information for March.

Sales revenue	$	310,000
Variable costs of operations, excluding labor costsa		93,000
Employee wages and salariesb		106,000
Manager salariesc		38,000
Fixed cost of automobilesd		31,000
Building costs (rent, utilities, etc.)e		18,500

^a 5 percent of this cost was wasted due to poor directions given to limo drivers.

^b 5 percent of this cost was for time spent by limo drivers because of poor directions.

^c 10 percent of this cost was time taken to address customer complaints.

^d The limos have 40 percent unused capacity.

^e The building has 10 percent unused capacity

a. Using the traditional income statement format, prepare a value income statement. (Loss amounts should be indicated with a minus sign.)

	DELUXE LIMO SERVICE Value Income Statement For the Month Ending March 31 Nonvalue-added Activities Value-added Activities Total Sales revenue Cost of services sold: Variable costs of operations, excluding labor costs Employee wages and salaries Fixed cost of automobiles Gross margin (loss) Administrative expenses: Manager salaries Building costs Operating income (loss)

What value would there be to the managers at DeLuxe from preparing the same information in April?

A. Preparing a April statement helps DeLuxe see whether he is improving in reducing nonvalue-added activities.

B. Preparing a April statement helps DeLuxe see whether he is improving in reducing value-added activities.

Answer 1

Solution:

Below is the value income statement for Deluxe LIMO services for the month ending March 31:

Working

Solution:

Correct answer is "A. Preparing a April statement helps DeLuxe see whether he is improving in reducing nonvalue-added activities."