Joe\'s Tax Service prepares tax returns for low-to middle-income taxpayers. Its

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 $50,000.

Required
(a.) Determine Joe's break-even dollar sales volume.

Product

Weighted

Selling Price

Weighted

Contribution

Margin

(b.) Determine Joe's margin of safety in sales dollars.
$Answer

Standard Multiform Complex Billing rate $50 $125 $250 Average variable costs (30) (75) (150) Average contribution margin $20 $50 $100 Number of returns prepared 1,750 500 250

Explanation / Answer

Answer: weighted selling price formula =

(no of billing hours for standard * rate + no of billing hours for multiform *rate + no of billing hours for complex *rate)/(total billing hours in all three units)

Contribution margin per unit = sales price - variable cost

Answer B: Margin of safety in sales dollars= it tells us about the excess units above the break even point

So total sales dollars is : (1750+500+250)*Weighted sales price - (break even volume )*weighted sales price

Margin of safety in sales dollars = 2500*85 - 1470.58*85 = $87500

Product Weighted selling price weighted contribution margin Standard 50 20 Multiform 125 50 Complex 150 100 Total 85 34 Weighted Contribution margin ratio 0.4 (weighted contribution margin /weighted sales price) Break even sales No of units sold* weighted contribution margin = Fixed costs no of units sold = 50000/34 1470.588235

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