Question

Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $25.0 per hour for each type of service, but lawn maintenance has higher variable costs ($10.0 per hour) than garden maintenance ($50 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: Sales Variable expenses Lawn Per Garden Per Maintenance Hour Maintenance Hour $ 200,000 $25.0 $50,000 $25.0 80,000 10.0 10,000 5.0 Total $ 250.000 90,000 Contribution margin $ 120,000 $15.0 $ 40,000 $20.0 160,000 56.000 Fixed expenses Operating income $ 104,000 Required: 1. Compute the overall CM ratio for the company Overall contribution maron ratio 2. Compute the overall break-even point for the company in sales dollars. < Prev 1 of 3 !!! Next >

Answer 1

1. Overall Contribution Margin Ratio
=Overall Contribution/Overall Sales
=160000/250000
64%
2. Overall Break-even Point ($)
=Fixed Cost/Overall CM Ratio
=56000/64%
$87,500
3. Weighted Average CM per hour
	Lawn Care	Garden Maintenance
Contribution Margin	$1,20,000	$40,000
No. of hours	8000	2000
Weighted Average CM per hour	$15	$20
4. Overall Break-even Point in hours
Overall CM per hour
=(120000+40000)/(8000+2000)
16 Hours
Overall Break-even Point in hours
=Fixed Cost/Overall CM per hour
=56000/16
3500 Hours
5. Hours for each service at overall break-even point
	Lawn Care	Garden Maintenance
No. of Hours	2800	700
	=3500/10000*8000	=3500/10000*2000
6. Overall Sales to earn desired profit
After Tax Profit desired	$57,750
Tax Rate	30%
Before Tax Profit desired	$82,500	=57750/(100%-30%)
Overall sales required
=(Profit+Fixed cost)/Overall CM Ratio
=(82500+56000)/64%
$2,16,406.25

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