Assignment Background

Two partners own a carpet cleaning company. They charge $100 for each carpet cleaning job. There expenses are:

* Sales commission: 20% ($20 for each job sold)

* Operator (the individual who actually pushes the equipment over the carpets): $30 per carpet cleaning job.

* Gas for truck: average $5 per cleaning job

* Soap: $2 per job

* Maintenance of cleaning machine: overhaul of machine costs $300 and has to be done after every 100 jobs (Hints: Divide the $300 overhaul cost by the 100 jobs to find the overhaul cost per job)

* Rent, office and warehouse: $500 per month

* Salaries to owners: total $2,250 per month

* Receptionist: $1,200 per month

* Insurance: $100 per month

* Utilities and telephone: $150 per month

Note: All figures for commissions, salaries, and wages include payroll tax expense.

Assignment

For parts 1-4 Show your work.

1. Separate the expenses into two lists:

a. Variable expenses. List these with the dollar amount of cost per cleaning job. Make sure to end with total variable expense per unit.

b. Fixed expenses. List these with the dollar amount of the expense per month. Make sure to end with total fixed expenses per month.

2. Compute the contribution margin.

3. Compute the breakeven point in units and in sales revenue dollars.

4. Produce an Income Statement to "prove" your Breakeven figures. (Should come out to $0 Net Income)