EXERCISE 8-21 (CONTINUED)

6. The company should consider charging a fee for travel to outlying cus-

tomers based on the distance traveled and a flat fee per job. At present,

close-in customers are in essence subsidizing service to outlying cus-

tomers and large-volume customers are subsidizing service to low-

volume customers. With fees for travel and for job support, the fee per

hundred square feet can be dropped substantially. This may result in

losing some low-volume jobs in outlying areas, but the lower fees per

hundred square feet may result in substantially more business close to

Bozeman. (If the fees are low enough, the added business may not

even have to come at the expense of competitors. Some customers may

choose to clean their carpets more frequently if the price were more at-

tractive.)

Before making such a radical change, the data should be carefully re-

viewed. For example, the wage cost of $37.50 for a 75-mile trip seems

rather high. Are two people sent out on jobs? Can the remote jobs be

done with one person?

Problem 8-26 (60 minutes)