Questions: Wildhorse provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Depreciation (straight-line) 1,400 per month Advertising 150 per month Insurance 2,475 per month Weed and feed materials 20 per lawn Direct labor 12 per lawn Fuel 3 per lawn Wildhorse charges 70 per treatment for the average single-family lawn. For the month ended July 31, 2025, the company had total sales of 9,100. (a) Prepare a CVP income statement for the month ended July 31, 2025.

Solution Steps

To prepare a CVP (Cost-Volume-Profit) income statement, we need to calculate the total revenue, total variable costs, total fixed costs, and then determine the contribution margin and net income. The revenue is calculated from the total sales. Variable costs per lawn include weed and feed materials, direct labor, and fuel. Fixed costs include depreciation, advertising, and insurance. The contribution margin is the difference between total revenue and total variable costs, and net income is the contribution margin minus total fixed costs.

To find the number of lawns treated, divide the total sales revenue by the price per treatment: \[ \text{Number of Lawns} = \frac{\text{Sales Revenue}}{\text{Price per Treatment}} = \frac{9100}{70} = 130 \]

The total variable costs are calculated by multiplying the number of lawns by the variable cost per lawn: \[ \text{Total Variable Costs} = \text{Number of Lawns} \times \text{Variable Costs per Lawn} = 130 \times 35 = 4550 \]

The contribution margin is the difference between sales revenue and total variable costs: \[ \text{Contribution Margin} = \text{Sales Revenue} - \text{Total Variable Costs} = 9100 - 4550 = 4550 \]

Net income is calculated by subtracting total fixed costs from the contribution margin: \[ \text{Net Income} = \text{Contribution Margin} - \text{Fixed Costs} = 4550 - 4025 = 525 \]

Final Answer