Question

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Exercise 11-8 Monty provides environmentally friendly lawn services for homeowners. Its operating costs are as follows Depreciation Advertising Insurance Weed and feed materials Direct labor Fuel $1,800 per montlh $400 per month $9,140 per month $15 per lawn $40 per lawn $3 per lawn Monty charges $100 per treatment for the average single-family lawn Determine the company's break-even point in number of lawns serviced per month Break-even point lawns LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR PROBLEM VIDEO: APPLIED SKILLS Determine the company's break-even point in dollars. (Round answer to 0 decimal places, e.g. 1,225.) Break-even point LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR PROBLEM VIDEO: APPLIED SKILLS

Answer 1

Solution:

Working:

Calculation of total monthly fixed costs

	$$
Depreciation	$1,800
Advertising	$400
Insurance	$9,140
Total Fixed Costs	$11,340

Calculation of Contribution Margin per unit and Contribution Margin Ratio

	$$
Treatment Charges for single family lawn	$100
Less: Total Variable Cost per law (15+40+3)	$58
Contribution Margin Per Lawn	$42
Contribution Margin Ratio (Per Unit Contribution Margin $42 / Charges for treatment per law $100 x 100)	42%

Break Even Point in number of lawns serviced per month

Break Even Point in number of lawns = Total Fixed Costs $11,340 / Per Unit Contribution Margin $42

= 270 lawns service

Break Even Point in dollars

Break Even Point in dollars = Total Fixed Costs $11,340 / Contribution Margin Ratio 42% or 0.42

= $27,000

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