EXERCISE 8-21 (CONTINUED)

5. Gallatin Carpet Cleaning appears to be losing money on the Flying N

Ranch job. However, caution is advised. Some of the costs may not be

avoidable and hence would have been incurred even if the Flying N

Ranch job had not been accepted. An action analysis (discussed in Ap-

pendix 8A) is a more appropriate starting point for analysis than the

simple report in part (4) above.

Nevertheless, there is a point at which travel costs eat up all of the

profit from a job. With the company’s current policy of charging a flat

fee for carpet cleaning irrespective of how far away the client is from

the office, there clearly is some point at which jobs should be turned

down. (What if a potential customer is located in Florida?)