4) Aman is thinking of starting up a personal financial service. The basic office supplies will...
4) Aman is thinking of starting up a personal
financial service. The basic office supplies will cost $3250 and
the variable cost for each consultation is $10.25. He plans to bill
each client $50 per consultation.
a) What is the break-even quantity of consultations for
Aman’s personal financial consultation? (3 marks)
b) If Aman’s goal is $1000, how many customers would he
need to reach his goal? (3 marks)
c) Find the contribution margin and contribution rate.
(3 marks)
Homework Answers
a)
Fixed Cost=F=$3250
Variable Cost per consultation=V=$10.25
Price=P=$50 per consultation
Break even Quantity=F/(P-V)=3250/(50-10.25)=81.76 or say 82 consultations
b)
Needed Profit=PR=$1000
Required quantity=(F+PR)/(P-V)=(3250+1000)/(50-10.25)=106.92 or say 107 consultations
c)
Contribution Margin per consultation= P-V=50-10.25=$39.75
Contribution Margin Ratio/Rate=Contribution Margin per consultation/Price=39.75/50=79.50%
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