Landis Landscaping is offering lawn-cuts for $40 per lawn. Landis has fixed costs equaling $108,000 per year, and its accountant has calculated the contribution margin ratio on each lawn mowed to be 60%. Based on this information, which of the following statements is correct?

Question

Quizplus · Accepted Answer

Break-even is equal to the point at which sales in units multiplied by contribution margin is equal to total fixed costs. If fixed costs are equal to$108,000 per year, or $9,000 per month, and each lawn cut sells for $40 with a contribution margin of 60%, then the contribution margin per lawn cut sold is$40 × 60% = $24.00, and the break-even point is $9,000 ÷ $24.00 = 375 lawn cuts per month. If fixed costs increase by $1,200 per month, then the break-even point becomes $9,000 + $1,200 = $10,200 ÷ $24.00 = 425 lawn cuts, an increase of 50 lawns cut over the original break-even point of 375 lawns cut.

Landis Landscaping Is Offering Lawn-Cuts for $40 Per Lawn