Question & Answer: Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The comp…..

Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $16 per hour for each type of service, but lawn maintenance has higher variable costs ($7 per hour) than garden maintenance ($5 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, 7,000 hours of lawn maintenance services and 3,000 hours of garden maintenance were provided:

Lawn maintenance Per hour Garden maintenance Per hour Total
Sales 112,000 16 48,000 16 160,000
Variable expenses 49,000 7 15,000 5 64,000
Contribution margin 63,000 9 33,000 11 96,000
Fixed expenses 64,800
Operating income 31,200

5.

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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 $42,000 if the tax rate is 30%.

Expert Answer

 

Lawn maintenance Per hour Garden maintenance Per hour Total
Sales 1,12,000 16 48,000 16 1,60,000
Variable expenses 49,000 7 15,000 5 64,000
Contribution margin 63,000 9 33,000 11 96,000
Fixed expenses 64,800
Operating income 31,200
Lawn maintenance Garden maintenance Total
Service Provided 7000 3000 10000
Weights 70% 30%
Contribution Margin 9 11
Weighted Average Contribution Margin 6.3 3.3 9.6
Part 1 Total Fixed Expenses 64,800
Weighted Average Contribution Margin 9.6
Overall Break Even Point 6750 (Total Fixed Expense/Weighted Average Contribution)
Part 2 Profit After Tax 42000
Add: Tax Expense@30% 18000
Profit Before Tax 60000
Add: Fixed Expenses 64,800
Desired Contribution Margin 1,24,800
Weighted Average Contribution Margin 9.6
Total Service Hours to be worked 13000 (Desired Contribution Margin/Weighted Average Contribution)
Sales Price for every Category 16
Total Sales in Dollars 208000

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