dolution

Yamhill County currently provides garbage removal services for two of the four small towns within its boundaries. In addition, it provides garbage removal services for residents who live in outlying rural areas. Each town has the option of contracting for garbage removal service from the county or providing service itself. Garbage volume and the resulting revenue from each town served is approximately the same; garbage volume for those who live in outlying rural areas is approximately that of two towns. Under the current situation, the following revenues and costs are incurred.

The Yamhill County commissioners are considering purchase of new garbage trucks that lift and crush the garbage more efficiently. This would double the fixed expenses and cut the existing variable expenses in half.

Required

A. Prepare a three-column pro forma income statement for the Yamhill County garbage service assuming the existing equipment continues in use. Show (1) the amount of projected net income if only outlying rural areas are served, (2) income if outlying rural areas plus those of two towns are served, and (3) income if outlying rural areas and four towns are served. Use the following format.

B. Using the same format, prepare another three-column pro forma income statement showing garbage service with the new equipment under each of the three income situations listed in the first requirement.

C. Explain the effects that changing to new trucks could have on Yamhill County’s profits and risks from the garbage service.