An engineering consulting firm measures its output in a standard service hour unit, which is a function of the personnel grade levels in the professional staff. The variable cost (cv) is $62 per standard service hour. The charge-out rate [i.e., selling price (p)] is $85.56 per hour. The maximum output of the firm is 160,000 hours per year, and its fixed cost (CF ) is $2,024,000 per year. For this firm, (a) what is the breakeven point in standard service hours and in percentage of total capacity? (b) what is the percentage reduction in the breakeven point (sensitivity) if fixed costs are reduced 10%; if variable cost per hour is reduced 10%; and if the selling price per unit is increased by 10%?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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An engineering consulting firm measures its output in a standard service hour unit, which is a function of the personnel grade levels in the professional staff. The variable cost (cv) is $62 per standard service hour. The charge-out rate [i.e., selling price (p)] is $85.56 per hour. The maximum output of the firm is 160,000 hours per year, and its fixed cost (CF ) is $2,024,000 per year. For this firm, (a) what is the breakeven point in standard service hours and in percentage of total capacity? (b) what is the percentage reduction in the breakeven point (sensitivity) if fixed costs are reduced 10%; if variable cost per hour is reduced 10%; and if the selling price per unit is increased by 10%? 

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