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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 $60,000.

Standard Multiform Complex
Billing rate $60 $135 $260
Average variable costs (30) (75) (150)
Average contribution margin $30 $60 $110
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 (a)

Note : Computation of % of sales based on number of return

Number of returns prepared %
Standard 1,750 1,750 / 2,500 = 70 %
Multiform 500 500 / 2,500 = 20 %
Complex 250 250/ 2,500 = 10 %
Total   2,500
Product

Weighted Selling Price

Weighted Contribution Margin
Standard ($60 * 70 %) =$42 ($30 * 70 %) =$21
Multiform ($135 * 20 %) =$27 ($60 * 20 %) =$12
Complex ($260 * 10 %) =$26 ($110 * 10 %) =$11
Total $95 $44
Working
Contribution margin ratio Weighted Contribution Margin / Weighted Selling Price = ($44 / $95) *100 46.316%
Break-even dollar sales volume Fixed Costs / Contribution margin ratio = $60,000 / 46.316% $129,545

Answer (b)

Note :

Actual Sales = ($60 * 1,750) + ($135 * 500 ) + ($260 * 250) = $105,000 + $67,500 +$65,000 = $237,500

Margin of safety in sales dollars = Actual sales - Break-even dollar sales

= $237,500 - $129,545 = $107,955

jeff jeffy answered 1 year ago
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