Multiple Product Break-Even AnalysisJoe'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 $70,000. Standard Multiform Complex Billing rate $70 $145 $270 Average variable costs (30) (75) (150) Average contribution margin $40 $70 $120 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.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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 $70,000.
| Standard | Multiform | Complex | |||
|---|---|---|---|---|---|
| Billing rate | $70 | $145 | $270 | ||
| (30) | (75) | (150) | |||
| Average contribution margin | $40 | $70 | $120 | ||
| 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.
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