Question

The Green and Grow Lawn Service mows its customers’ lawns and provides lawn maintenance starting in the months of March through October. During the winter months, the owners, Jack and Jill Hill, find part-time jobs. They are considering the possibility of adding a snow removal service during the winter. A snow blower and a shovel would cost $700. They estimate their cost per job would be $10.00. They are considering a charge of $55 to clear a normal-size home driveway.

a. Create a model to estimate the profit for the snow blower operation as described above. (Assume that they have the ability to meet the demand that will arise from their summer customers)

b. How many jobs would they need to break-even?

c. Based on past winters, Jack and Jill believe they can expect about five major snowfalls in the winter and would be able to work all day for the two day immediately following the snows, when people want their driveways cleared. If they are able to do about 10 snow removal jobs per day (and they believe the demand will be there), how much money can they expect to make.

Another option for Green and Grow is to remove snow from business parking lost. They would need a small tractor with a snow plow, which costs $2500 and would have to hire someone on an hourly basis to help, which with gas would cost about $30 per job. Jack and Jill estimate that they could do four of these large jobs per day. They would charge $150 per job. Assume the same conditions - five major snowfalls in the winter, able to work for two days immediately following the snows.

e. Create a model to estimate the profit for this option.

f. How many jobs would they need to break-even?

g. Is it a better option for Green and Grow?

Answer 1

a) Model for estimating profits

Revenue per job	$55
Cost per job	$10
Contribution margin per job	$45
Fixed cost	$700
Profit	(Contribution margin*number of jobs) - fixed costs

b) Break even jobs = fixed costs / contribution margin per unit

= 700 / 45

= 15.56 jobs

c) Total number of jobs in winter = 10*10 = 100 jobs (in 5 snowfall there would be 5*2 days of jobs)

Revenue	$5,500
Cost	$1,000
Contribution margin	$4,500
Fixed cost	$700
Profit	$3,800

e)

Revenue per job	$150
Cost per job	$30
Contribution margin per job	$120
Fixed cost	$2,500
Profit	(Contribution margin*number of jobs) - fixed costs

f) Break even jobs = 2500 / 120

= 21 jobs

g) Profit in case of second optin

Revenue	$6,000
Cost	$1,200
Contribution margin	$4,800
Fixed cost	$2,500
Profit	$2,300

Total number of jobs = 4*10 = 40

No, it is not a better option for Green and Grow as the profits are lower in this option.