Question

All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Compute break-even point in units and dollars. Depreciation $1,400 per month Advertising $200 per month Insurance $2,000 per month Weed and feed materials $12 per lawn Direct labor $10 per lawn Fuel $2 per lawn All That Blooms charges $60 per treatment for the average single-family lawn. Instructions Determine the company's break-even point in (a) number of lawns serviced per month and (b) dollars.

Answer 1

Answer:

Break-even point = 100 lawns and break-even sales point = $6,000

Explanation:

Total fixed costs = depreciation + advertising + insurance

                            = $1,400 + $200 + $2,000

                            = $3,600/month

Total variable cost per unit = weed + direct labor + fuel

                                             = $12 + $10 + $2

                                             = $24/lawn

Contribution margin ratio:

= (sales per unit - variable cost per unit) ÷ sales per unit

= ($60 - $24) ÷ $60

= 60%

Break-even sales = fixed costs ÷ contribution margin ratio

                             = $3,600 ÷ 60%

                             = $6,000

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

                                       = $6,000 ÷ $60

                                        = 100 lawns

Break-even point = 100 lawns and break-even sales point = $6,000