Question

Exercise 5-8 All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Depreciation $ 1,500 per month Advertising $ 4,885 per month Insurance $ 1,700 per month Weed and feed materials $ 4 per lawn Direct labor $ 3 per lawn Fuel $ 1 per lawn All That Blooms charges $ 85 per treatment for the average single-family lawn. Determine the company’s break-even point in number of lawns serviced per month. Break-even point lawns LINK TO TEXT LINK TO TEXT Determine the company’s break-even point in dollars. (Round answer to 0 decimal places, e.g. 1,225.) Break-even point $

Answer 1

Total fixed cost = $1500 + $4885 + $1700 = $8085

Variable cost per lawn = $4 + $3 + $1 = $8

Revenue per lawn = $85

Break-even point in number of lawns = Fixed cost / (Revenue - Variable cost)

= $8085 / ($85 - $8)

= $8085 / $77

= 105 lawns

Company’s break-even point in number of lawns serviced per month is 105 lawns

Break even point in dollars = Fixed Cost / Contribution margin ratio

Contribution margin ratio = (Revenue - Variable cost)/ Revenue * 100

= ($85 - $8) / $85 * 100

= 90.58824%

Break-even point $ = $8085 / 90.58824%

= $8925

Break even point in $ = $8925