Question

Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $15.0 per hour for each type of service, but lawn maintenance has higher variable costs ($6.0 per hour) than garden maintenance ($3.0 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	$	120,000		$	15.0		$	30,000		$	15.0		$	150,000
Variable expenses		48,000			6.0			6,000			3.0			54,000
Contribution margin	$	72,000		$	9.0		$	24,000		$	12.0			96,000
Fixed expenses														40,320
Operating income													$	55,680

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 $85,120 if the tax rate is 30%.

Answer 1

1)Overall contribution margin ratio : Overall contribution margin /overall sales

                                     = 96000 /150000

                                       = .64 or 64%

Product	contribution [A]	weight of sales [B]	Weighted average contribution margin
Lawn Maintenance	72000	120000/150000=.80	72000*.80= 57600
Garden mainenance	24000	30000/150000=.20	24000*.20= 4800
		150000	62400

2)Breakeven point ($) =Fixed cost /overall contribution margin ratio

                        = 40320 / .64

                         = 63000

                     

3) weighted-average CM per hour for the company : $ 9.6 per hour

	contribution [A]	weight of sales [B]	Weighted average contribution margin per hour
Lawn Maintenance	9	120000/150000=.80	9*.80=7.2
Garden maintenance	12	30000/150000=.20	12*.20=2.4
		150000	9.60

4)

Breakeven point in hour = Fixed cost /Weighted average contribution margin per hour

                                = 40320 /9.6

                                = 4200 Hours

5)

	Hours of each service at breakeven
Lawn Maintenance	4200 *80% weight = 3360
Garden maintenance	4200 *20%= 840

6)Before tax profit =After tax profit /(1-tax rate)

                       = 85120 /(1-.30)

                        = $ 121600

Sales in dollars required = [Fixed cost +Target profit] /Overall contribution margin ratio

                                     =[40320+121600]/.64

                                   = 161920/.64

                                   = $ 253000