Question

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 $55,000.

Standard Multiform Complex
Billing rate $55 $130 $255
Average variable costs (30) (75) (150)
Average contribution margin $25 $55 $105
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.

Answer 1

$ 128,571

Step-by-step explanation:

Break-even in sales is the amount of sales in Dollars that would produce a zero profit

Break-even sales = General fixed cost/Weighted average contribution sales

Contribution from a mix = (25 ×1750) + (55 × 500) + (105 × 250)= 97500

Revenue from a mix= (55 × 1750) + (130 ×500 ) + (255 ×250)= 225000

Weighted average contribution ratio =97500/225,000× 100

Break-even Dollar sales = 55,000/42.8%

=$ 128,571.43