B&L Landscapes, Inc. Mini Practice Part 4Bill Graham and Larry Miller incorporated B&L Landscapes, Inc. on July 1, 2016. The businessconsists of lawn care and sprinkler system installations. In addition, they also sell two types offertilizer.During 2017, B&L Landscapes, Inc. acquired a 30% interest in Crestline Pipe. The president ofCrestline has been expressing concern about the profitability of the company. Bill and Larrywant to help and have volunteered your services to provide some managerial reporting forCrestline.Crestline Pipe distributes high-quality ¾ 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 ………………………………………………………………………………………………..$60,000Less variable expenses …………………………………………………………………….18,000Contribution margin ………………………………………………………………………..42,000Less fixed expenses ………………………………………………………………………….27,000Net operating income …………………………………………………………………….$ 15,000 Instructions:Answer the following independent questions:1. What is the productâs contribution margin? What is the productâs CM ratio?2. Use the contribution margin to determine the break-even point in sales units (round to wholeunits). Use the CM ratio to determine the break-even point in sales dollars (round to wholedollars).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 $20,000this year. By how much should net operating income increase (or net operating lossdecrease), assuming that fixed costs do not change?5. The president expects sales to increase by 25% this year. If sales do increase by 25%, howmuch could fixed costs increase and still maintain net operating income of $15,000?6. The president would like to reduce the sales price of the pipe to $2.70 per linear foot unitand increase advertising by $3,000. Using the CM method, what is the breakeven point inunits with these changes (round to whole units)? How many units would Crestline have to sellto maintain a net operating income of at least $15,000 (round to whole units)?Prepare your answers in a memorandum to the President of Crestline Pipe. Be sure to showall your work and identify your calculations and your solutions clearly. Remember this reportis going to a non-accountant, so be sure to include some explanation of what the numbersmean.
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