Question
Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $18.0 per hour for each
Gulf Shore Lawn and Garden Maintenance provides two general outdoor services: lawn maintenance and garden maintenance. The company charges customers $18.0 per hour for each type of service, but lawn maintenance has higher variable costs ($10.8 per hour) than garden maintenance ($5.4 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, 8,000 hours of lawn maintenance services and 2,000 hours of garden maintenance were provided:
Lawn Maintenance | Per Hour | Garden Maintenance | Per Hour | Total | |||||||||||
Sales | $ | 144,000 | $ | 18.0 | $ | 36,000 | $ | 18.0 | $ | 180,000 | |||||
Variable expenses | 86,400 | 10.8 | 10,800 | 5.4 | 97,200 | ||||||||||
Contribution margin | $ | 57,600 | $ | 7.2 | $ | 25,200 | $ | 12.6 | 82,800 | ||||||
Fixed expenses | 23,184 | ||||||||||||||
Operating income | $ | 59,616 | |||||||||||||
Required:
1. Compute the overall CM ratio for the company.
2. Compute the overall break-even point for the company in sales dollars.
3. Compute the weighted-average CM per hour for the company. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
4. Calculate the overall break-even point for the company in hours.
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. Calculate the overall sales in dollars required to earn an after-tax profit of $89,600 if the tax rate is 30%.
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