Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: la
ID: 2491685 • Letter: G
Question
Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $15 per hour for each type of service, but lawn maintenance has higher variable costs ($3.00 per hour) than garden maintenance ($6.00 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, 3,500 hours of lawn maintenance services and 875 hours of garden maintenance were provided: Lawn Maintenance Per Hour Garden Maintenance Per Hour Total Sales $ 52,500 $ 15.00 $ 13,125 $ 15.00 $ 65,625 Variable expenses 10,500 3.00 5,250 6.00 15,750 Contribution margin $ 42,000 $ 12.00 $ 7,875 $ 9.00 49,875 Fixed expenses 47,880 Operating income $ 1,995
Required: a). Compute the overall CM ratio for the company.
b)Compute the overall break-even point for the company in sales dollars.
c) Compute the weighted-average CM per hour for the company. (Do not round intermediate calculations. Round your answers to 2 decimal places.
d
Calculate the overall break-even point for the company in hours.
e At the overall break-even point in total hours, how many hours of each service must be provided for the company to break-even?
Calculate the overall break-even point for the company in hours.
e At the overall break-even point in total hours, how many hours of each service must be provided for the company to break-even?
Explanation / Answer
Answer:(a) Overall Contribution margin ratio=(Total contribution/Total sales)*100
=(21/30)*100=70%
Answer:(b) overall break-even point ($)=Fixed cost/CM ratio
=$47880/0.70=$68400
Answer:(c) The weighted-average CM per hour for the company:
=[(12/15)*100]*3500/4375+[(9/15)*100]*875/4375
=64%+12%
=76%
Answer:(d) overall break-even point =$47880/0.76=$63000/$15=4200 hours
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