B&L; Landscapes, Inc. Mini Practice Part 4 Bill Graham and Larry Miller incorpor

Question

B&L; Landscapes, Inc. Mini Practice Part 4 Bill Graham and Larry Miller incorporated B&L; Landscapes, Inc. on July 1, 2014. The business consists of lawn care and sprinkler system installations. In addition, they also sell two types of fertilizer. During 2015, B&L; Landscapes, Inc. acquired a 30% interest in Crestline Pipe. The president of Crestline has been expressing concern about the profitability of the company. Bill and Larry want to help and have volunteered your services to provide some managerial reporting for Crestline. Crestline Pipe distributes high-quality inch PVC pipe that sells for $3.00 per linear foot unit. Variable costs are $1.05 per unit, and fixed costs total 27,000 per year Assume that the operating results for last year were: Less variable expenses. _21000 Contribution margin 39,000 Net operating income. $12.000

Explanation / Answer

1) Products contribution = selling price per unit - variable costs per unut

= 3 - 1.05

= $1.95

Contribution margin ratio = contribution margin / selling pruce per unit

= 1.95 / 3

= 65%

2) Break even point in units = fixed costs / contribution margin per unit

= 27000 / 1.95

= 13846 units

Break even point in dollars = fixed costs / contribution margin ratio

= 27000 / 65%

= $41,538

3) Margin of safety in dollars = sales - break even sales

= 60000 - 41538

= $18,462

Margin of safety in units = sales units - break even sales units

= 20000 - 13846

= 6154 units

4) Change in operaitng income

The new sales units would be 40000 units

New sales $1,20,000 vairable costs $42,000 Contribution margin $78,000 Fixed costs $27,000 New operating income $51,000 Old operating income $12,000 Increase in operating income $39,000

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