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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.
| 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.
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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 | |||||||
