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Multiple Product Break-Even Analysis Joe's Tax Service prepares tax returns for low-to middle-income taxpayers. Its service...

Multiple Product Break-Even Analysis
Joe's Tax Service prepares tax returns for low-to middle-income taxpayers. Its service operates January 2 through April 15 at a counter in a local grocery store. All jobs are classified into one of three categories: standard, multiform, and complex. Following is information for last year. Also, last year, the fixed cost of rent, utilities, and so forth were $65,000.

Standard Multiform Complex
Billing rate $65 $140 $265
Average variable costs (30) (75) (150)
Average contribution margin $35 $65 $115
Number of returns prepared 1,750 500 250

Required
(a.) Determine Joe's break-even dollar sales volume.

  • Round contribution margin to three decimal places.
  • Round break-even sales volume to the nearest dollar.

Product

Weighted

Selling Price

Weighted

Contribution

Margin
Standard Answer Answer
Multiform Answer Answer
Complex Answer Answer
Total Answer Answer
Contribution margin ratio: Answer
Break-even sales volume: Answer

(b.) Determine Joe's margin of safety in sales dollars.

Round answer to the nearest whole number.
$Answer

Solutions

Expert Solution

Answer:
Product Number of returns prepared Allocated Percentage
Standard 1,750 70%
(1,750 / 2,500 )
Multiform 500 20%
(500 / 2,500 )
Complex 250 10%
(250 / 2,500 )
Total 2,500 100%
(a)
Product Weighted
Selling Price		 Weighted
Contribution Margin
Standard $ 45.50
($ 65 x 70% )		 $ 24.50
($ 35 x 70% )
Multiform $ 28
($ 140 x 20% )		 $ 13
($ 65 x 20% )
Complex $ 26.5
($ 265 x 10% )		 $ 11.50
($ 115 x 10% )
Total $ 100 $ 49
Contribution margin ratio: Contribution margin / Selling price
    = $ 49 / 100		 49%
Break-even sale volume Fixed costs/Contribution margin ratio
    = $ 65,000 / 49%		 $ 132,653
(b)
Margin of Safety = Actual sales (-) Break-even sales
( $ 65 x 1,750 ) + ($ 140 x 500) + ( $ 265 x 250 )(-) $ 132,653
= $ 113,750 + $ 70,000 + $ 66,250 (-) $ 132,653
=   $ 250,000 (-) $ 132,653		 $ 117,347

ekkarill92 answered 3 years ago
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