Question

KF Services provides Cars' check up its customers. The selling price of each check up is $75 and the variable costs associated are $42,5. The monthly relevant fixed costs are $10,000. Required: a. How many check up are needed to break even? What is the break even point in dollars? b. What is the margin of safety in dollars, assuming sales total $30,000? c. How many check up are needed to achieve a net income of $40,000?, if the tax rate is 20% d. What is the break even level in units, assuming the fixed costs are $5000 plus 10% of revenue received?

Answer 1

Given
i	Selling Price	$          75.00	Per Checkup
ii	Variable Costs	$          42.50	Per Checkup
iii	Contribution (i-ii)	$          32.50	Per Checkup
iv	Fixed Costs	$ 10,000.00
a	Break Even Point       =	Fixed Costs/ Contribution per Check up
	(No. of Check ups)
	=	$10000/$32.5
	=	307.692
	=	308 Check ups (Approx.)
b	Break Even Point       =	308 x $75
	(Sales in $)
	=	$ 23,100.00
c	No. of Check ups needed to achieve a net income of $40000, if tax rate is 20%
	=	[Desired Profit (Pre Tax)+Fixed Costs]/Contribution per Check up
	=	[($40000 x 100/80) + $10000]/32.5
	=	1846.15
	=	1847 Check ups(Approx.)
d	Break even level Chckups if Fixed Costs are $5000 plus 10% of Revenue received
	let us say no. of checkups at breakeven level are 'a'
	At Break Even point, Contribution = Fixed Costs
	So the equation is
	=> 32.5 a                      =	$5000+(75 a x 10%)
	=> 32.5 a                      =	$5000+7.5 a
	=> 32.5 a - 7.5 a =	$    5,000.00
	=> 25 a =	$    5,000.00
	=> a =	$ 5000/25	= 200 Ckeck ups
	So at 200 Check ups the break even point exists.