Question

Novak provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Depreciation $2,400 per month Advertising $400 per month Insurance $2,400 per month Weed and feed materials $15 per lawn Direct labor $31 per lawn Fuel $2 per lawn Novak 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 enter the company’s break-even point in number of lawns lawns

Answer 1

Answer: 100 lawns

Explanation:

The Break-Even Point is the point where expenses/costs equal revenue.

First calculate the costs starting with the fixed costs which are Depreciation, advertising and insurance

= 2,400 + 400 + 2,400

= $5,200

Then the Variable costs per units which are, Weed and feed materials, Direct labor and Fuel.

= 15 + 31 + 2

= $48

Now calculate the Contribution Margin ratio which is,

= (Sales - Variable Cost ) / Sales

= (100 - 48) / 100

= 52%

With Contribution Margin, Break-Even sales can be calculated as,

Breakeven sales = fixed costs / contribution margin ratio

Breakeven sales = 5,200/52%

Breakeven sales in cash = $10,000

Breakeven sales in lawns = breakeven sales / sales per unit

Breakeven sales in lawns = 10,000/100

Breakeven sales in lawns = 100 lawns

Novak breaks even at servicing 100 lawns.