B&L landscapes, Inc. Mini practice part 4 B&L; Landscapes, Inc. Mini Practice Pa

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B&L landscapes, Inc. Mini practice part 4

B&L; Landscapes, Inc. Mini Practice Part 4 Bill Graham and Larry Miller incorporated B&L; Landscapes, Inc. on July 1,2014. The busine consists of lawn care and sprinkler system instailations. In oddition, they also sell two types fertilizer During 2015, B&L; Landscapes, Inc. acquired a 30% interest in Crestline pipe. The president of Crestline has been expressing concern obout the profitability of the company. Bill and Larry want to help and have volunteered your services to provide some managerial reporting for Crestlinee Crestine Pipe distributes high-quality 4 inch PVC pipe that sells for $3.00 per linear foot unit Variable costs are $1.05 per unit, and fixed costs total 27.000 per year Assume that the operating results for last year were $60,000 Less variable expenses. 21000 Contribution margin Less fixed expenses... 27000 Net operating income. $ 12.000 39.000 Instructions: Answer the following independent questions: 1. What is the product's contribution margin? What is the product's CM ratio? 2. Use the contribution margin to determine the break-even point in sales units (round to whole units). Use the CM ratio to determine the break-even point in sales dollars (round to whole dollars 3. What is the margin of safety in dollars and units for Crestline Pipe? 4. Due to an increase in demand. the company estimates that sales will increase by $20,000 this year. By how much should net operating income increase for net operating loss decrease), assuming that fixed costs do not change? 25%, how 5. The president expects sales to increase by 25% this year, if sales do increase by much could fixed costs increase and still maintain net operating inc ome of $12.000? 6. The president would like to reduce the sales price of the pipe to $2.70 per linear foot unit and increase advertising by $3,000. Using the CM method, what is the breakeven point in units with these changes fround to whole units)2 How many units would Crestine have to s to maintain a net operating income of at least $12.000 fround to whole unitsj ork and identify your calculations and your solutions clearly. Remember this report is going o a non-accountant, so be sure to include some explanation of what the numbers mean Prepare your answers in a memo to the President of Crestine Pipe. Be sure to show all your

Explanation / Answer

Part 4. The income will be increase by $20000*65%= $13000

65 % is contribution ratio

Contribution ratio is = ((sales - variable cost) ÷ sales)*100

((3 - 1.05) ÷ 3)*100= 65%

We can varify $ 13000

New sales 60000+ 20000= $80000

Variable cost is 35% ( (1.05 ÷3)*100)

Contribution= 80000 - 35% of 80000= $52000

Income= contribution- fixed cost

$52000 - 27000 = $25000

Increase in income is new income - old income

$ 25000-12000= $13000

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