Question

3-50. Extensions of the CVP Model Multiple Products Sell Block prepares three types of simple tax returns: individual, partnerships, and (small) corpora- tions. The tax returns have the following characteristics: Individuals $200 Partnerships $1,000 Corporations $2,000 Price charged per tax return ........ Variable cost per tax return (including wage paid to tax preparer)........... Expected tax returns prepared per year .. $180 60,000 $900 4,000 $1,800 16,000 The total fixed costs per year for the company are $3,690,000. Required ch What is the anticipated level of profits for the expected sales volumes? Assuming that the product mix is the same at the break-even point, compute the break-even point. Suppose the product sales mix changes so that, for every ten tax returns prepared, six are for individuals, one is for a partnership, and three are for corporations. Now what is the break- even volume for Sell Block?

Answer 1

1 a) 2 Anticipated profit Individuals Partneships Corporations Total 4 return L 200 10000 2000|| 5 Less: Variable cost 1800 900 1800 6 Contribution per tax return 20 100 2001 60000 1200000 4000 400000 1 6000 32000001 8 Expected tax returns 9 Total contribution 10 Less: fixed cost 11 Anticipated profit 12 13 b) 4800000 3690000 1110000 14 Break-even point=Fixed cost/Weighted average contribution per tax return 15 Weighted average contribution per tax return: 16 17 Individuals 18 Partneships 19 Corporations Contribution Weight 20 100 2001 Cont*Weight 7.5 150 0.5 501 21 4 00 101 600 20 21 (Weights are 56000:7000:7000 which can be simplified as 7.5:0.5:2) 22 Weighted average contribution per tax return=600/10=60 23 24 Break-even point=3690000/60=61500 returns

25 26 ) 27 Break-even point=Fixed cost/Weighted average contribution per tax return 28 Weighted average contribution per tax return: 29 30 Individuals 31 Partneships 32 Corporations 33 Contribution Weight 20 100 Cont*Weight 120 100 1 200 600 10 820 34 Weighted average contribution per tax return=820/10=82 35 36 Break-even point=3690000/82=45000 returns 37

A в 1 a) 2 Anticipated profit Individuals Total 200 4 Price charged per tax return 5 Less: Variable cost 6 Contribution per tax return Partneships 1000 900 =C4-C5 Corporations 2000 1800 =D4-D5 180 =B4-B5 60000 =B8*B6 4000 =C8*C6 16000 =D8%D6 8 Expected tax returns 9 Total contribution 10 Less: fixed cost 11 Anticipated profit 12 13 b) =B9+C9+D9 3690000 =E9-E10 14 Break-even point=Fixed cost/V 15 Weighted average contribution 7.5 16 17 Individuals 18 Partneships 19 Corporations Contribution 20 100 200 Weight Cont*Weight =B17*C17 0.5 =B18*C18 =B19*C19 I=SUM(C17:C19) =SUM(D17:D19) | 2 20 21 (Weights are 56000:7000:7000 22 Weighted average contribution 23 24 Break-even point=3690000/60

25 26 c) 27 Break-even point=Fixed cost/V 28 Weighted average contribution 29 30 Individuals 31 Partneships 32 Corporations 33 Contribution Weight 2016 100 2003 10 Cont*Weight =B30*C30 =B31*C31 =B32*C32 =SUMD30:D32) 34 Weighted average contribution 35 36 Break-even point=3690000/82 37 38 39