Question

Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: fawn maintenance and garden maintenance. The company charges customers $20.0 per hour for each type of service, but lawn maintenance has higher variable costs ($12.0 per hour) than garden maintenance ($6.0 per hour) because of fuel expenses incurred to operate lawn-mowing equipment. All employees are paid a fixed monthly salary. A contribution format income statement for a recent month for the two services appears below. During the month, 8,000 hours of lawn maintenance services and 2,000 hours of garden maintenance were provided: si Lawn Der Garden Per Maintenance Hour Maintenance Hour Total Sales $ 160,000 $20.0 $ 40,000 $20.0 $ 200.000 Variable expenses 96,000 12.0 12,000 /6.0 108,000 Contribution margin $ 64,000 $8.0 $ 28,000 $14. 0 92,000 520 Fized expenses Operating income Required:

1. Compute the overall CM ratio for the company. (as a percent)

2. Compute the overall break-even point for the company in sales dollars.

3. Compute the weighted-average CM per hour for the company. ( for both lawn maintenance and garden maintenance

4. Calculate the overall break-even point for the company in hours.

5. At the overall break-even point in total hours, how many hours of each service must be provided for the company to break-even? ( for both lawn maintenance and garden maintenance

6. Calculate the overall sales in dollars required to earn an after-tax profit of $53,760 if the tax rate is 30%.

Answer 1

1.Overall CM Ratio = Total CM/Total Sales

= 92000/200,000

= 46%

2.Overall break even point = Fixed costs/Overall CM Ratio

= 51,520/46%

= $112,000

3.Weighted average CM per hour = Total CM/Total hours

= 92000/10,000

= $9.2 per hour

4.Break even point in hours = Fixed costs/Weighted average CM per hour

= 51520/9.2

= 5600 hours

5.Lawn Maintenance = 5600*8000/10,000 = 4,480 hours

Garden Maintenance = 5600*2000/10,000 = 1,120 hours

6.Sales dollars required = (Before tax income + Fixed costs)/Overall CM Ratio

= (53760/70% + 51520)/46%

= $278,956.52