Question

Blossom provides environmentally friendly lawn services for homeowners. Its operating costs are as follows.

Depreciation $1,400 per month
Advertising $200 per month
Insurance $3,680 per month
Weed and feed materials $13 per lawn
Direct labor $16 per lawn
Fuel $3 per lawn

Blossom charges $80 per treatment for the average single-family lawn.

Required:
Determine the company.

Answer 1

Answer:

Break-even point = 110 lawns & Break-even sales point = $8,800

Explanation:

Total fixed costs = Depreciation + Advertising + Insurance

Total fixed costs = 1,400 + 200 + 3,680

Total fixed costs = $5280/month

Total variable cost per unit = Weed + Direct labor + Fuel

Total variable cost per unit = 13 + 16 + 3

Total variable cost per unit = $32/lawn

Contribution margin ratio = (Sales per unit - variable cost per unit) / sales per unit

Contribution margin ratio = (80 - 32) / 80

Contribution margin ratio = 0.6

Contribution margin ratio = 60%

Break-even sales = Fixed costs / contribution margin ratio

Break-even sales = $5280 / 60%

Break-even sales = $8800

Break-even sales units = Break-even sales / sales per unit

Break-even sales units = 8800 / 80

Break-even sales units = 110 lawns

Break-even point = 110 lawns & Break-even sales point = $8,800