Question

Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $10.0 per hour for each type of service, but lawn maintenance has higher variable costs ($4.0 per hour) than garden maintenance ($2.0 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:

	Lawn Maintenance			Per Hour			Garden Maintenance			Per Hour			Total
Sales	$	80,000		$	10.0		$	20,000		$	10.0		$	100,000
Variable expenses		32,000			4.0			4,000			2.0			36,000
Contribution margin	$	48,000		$	6.0		$	16,000		$	8.0			64,000
Fixed expenses														31,360
Operating income													$	32,640

Required:

1. Compute the overall CM ratio for the company.

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

3. Compute the weighted-average CM per hour for the company. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

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?

6. Calculate the overall sales in dollars required to earn an after-tax profit of $74,480 if the tax rate is 30%.

Answer 1

1.
Overall CM ratio	Total contribution margin/Total sales revenue
Overall CM ratio	64000/100000
Overall CM ratio	64.00%
2
Overall break-even point	Fixed costs/Contribution margin ratio
Overall break-even point	31360/64%
Overall break-even point	$49,000
3.
Weighted average CM
Weight of Lawn	80.00%	80000/100000
Weight of Garden	20.00%	20000/100000
Weighted average CM	(6*80%)+(8*20%)
Weighted average CM	$6.40	per hour
4.
Break-even point in hours	Fixed costs/Contribution margin per hour
Break-even point in hours	31360/6.40
Break-even point in hours	4,900
5.
Lawn maintenance	3,920	4900*80%
Garden maintenance	980	4900*20%
6
Before tax profit	$106,400	74480/0.7
Target profit needed	$137,760	31360+106400
Overall sales in dollar	$215,250	137760/64%