Please answer with calculations and solutions clearly outlined, I will rate you

ID: 2573333 • Letter: P

Question

Please answer with calculations and solutions clearly outlined, I will rate you well! Thank you!!

B&L; Landscapes, Inc. Mini Practice Part 4 Bill Graham and Larry Miller incorporated B&L; Landscapes, Inc. on July 1, 2016. The business consists of lawn care and sprinkler system installations. In addition, they also sell two types of fertilizer. During 2017, B&L; Landscapes, Inc. acquired a 30% interest in Crestline Pipe. The president of Crestline has been expressing concern about the profitability of the company. Bill and Larry want to help and have volunteered your services to provide some managerial reporting for Crestline. Crestline Pipe distributes high-quality 4 inch PVC pipe that sells for $3.00 per linear foot unit. Variable costs are $0.90 per unit, and fixed costs total 27,000 per year. Assume that the operating results for last year were: Sales.. $60,000 Less variable expenses. 18,000 Contribution margin..... 42,000 Less fixed expenses..... 27,000 Net operating income. $ 15,000

Explanation / Answer

Contribution Margin = Sales – Variable Cost

= $60,000 - $18,000

Contribution Margin = $42,000

CM Ratio = Contribution Margin / Sales

= $42,000 / $60,000

CM Ratio = 70%

Break Even point (In Sales) = Fixed Expenses / CM ratio

= $27,000 / 70%

Break Even point (In Sales) = $38,571.43

Break Even point (In Units) = Fixed Expenses / (Price – Variable Expenses)

= $27,000/($3 – $0.9)

Break Even point (In Units) = 12,857 Units

Margin of safety (In Value) = Total sales – Break even sales

= $60,000 - $38,571.43

Margin of safety = $21,429

Margin of safety (In Units) = Margin of safety (In Value) / Selling Price per unit

= $21,429 / $3

Margin of safety (In Units) = 7,143 Units

We know that CM ratio is 70%, so Contribution Margin is 70% of Sales and if Fixed Cost will not change, then

Increase in Profit = 70% of Increase in Sales

= 70% of $20,000

Increase in Profit = $14,000

If Sales will increase by 25% then New Sales will be $75,000, variable Cost = $22,500 (30% of Sales), Contribution Margin = $52,500 (75,000 – 22,500)

If Profit is to maintain at $15,000 then NEW Fixed Cost = New Contribution Margin – Operating Profit

= $52,500 - $15,000

New Fixed Cost = $37,500

Increase in Fixed Cost = New Fixed Cost – Old Fixed Cost

= $37,500 – 27,000

Increase in Fixed Cost = $10,500

Sales = $60,000/$3 = 20,000 Units

(In $)

Sales (20,000 Units * $2.7)

54,000

Less: Variable Cost (20,000 Units * 0.9)

18,000

Advertisement Expense

3,000

Contribution Margin

33,000

Less: Fixed Cost

27,000

Operating profit

6,000

Break Even point (In Units) = Fixed Expenses / (Price – Variable Expenses)

= 27,000 / (2.7 – 0.9)

Break Even point (In Units) = 15,000 Units

To get a profit of $15,000

Let sales to earn $15,000 is x Units

Sales = 2.7x

Variable Cost = 0.9x

Advertisement Expense = 3,000

Contribution margin = Sales - Variable Cost - Advertisement Expense

= 2.7x – 0.9x – 3,000

= 1.8x -3,000

Fixed Cost = 27,000

Profit = 1.8x -3,000 – 27,000

= 1.8x – 30,000

Profit = 15,000 = 1.8x – 30,000

1.8x = 15,000 + 30,000

X = 25,000 Units

We have to sell 25,000 Units to earn a profit of $15,000