The Rainier Company provides landscaping services to corporations and businesses. All its landscaping work requires Rainier to use landscaping equipment. Its landscaping equipment has the capacity to do 10,000 hours of landscaping work. It currently anticipates getting orders that would utilize 9,000 hours of equipment time from existing customers. Rainier charges $80 per hour for landscaping work. Cost information for the current expected activity level is as follows:

Revenues ($80 x 9,000 hours) $720,000

Variable landscaping costs (including materials and labor), which vary 450,000

with the number of hours worked ($50 per hour x 9,000 hours)

Fixed landscaping costs 108,000

Variable marketing costs (5% of revenues) 36,000

Fixed marketing costs 72,000

Total costs 666,000

Operating income $54,000

Begin by completing an analysis, and start by showing the computation of the company's contribution margin without the landscaping work from

HudsonHudson.

Next, calculate the contribution margin of the special order.

		Contribution Margin for
		Existing Landscape
		Customers
Revenues
Variable costs:
	Landscaping costs
	Marketing costs
Total variable costs
Contribution margin

Contribution Margin for

Hudson Corporation

Landscaping Work

Determine the contribution margin per hour for existing customers. (Enter amounts to the nearest cent.)

	/		=	Contribution margin per hour for existing customers
	/		=		per hour

Determine the contribution margin per hour for

Hudson'sHudson's

order and then determine whether

RainierRainier

should do any landscaping work for

HudsonHudson

Corporation. (Enter amounts to the nearest cent.)

	/		=	Contribution margin per hour for Hudson's order
	/		=		per hour

To maximize operating income, Rainier should allocate as much of its capacity to customers who generate the
contribution margin per unit. That is, Rainier should first allocate equipment capacity to				and only
the balance to		.

Rainier maximizes total contribution margin by allocating			hours of equipment capacity to existing customers and
	to Hudson Corporation, for a total contribution margin of $			.