# Question & Answer: The total fixed costs per year for the company are \$3, 690,000. a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the…..

The total fixed costs per year for the company are \$3, 690,000. a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the product mix is the same at the break-even point, compute the break-even point. c. 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?

a.ANTICIPATED LEVEL OF PROFIT:

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Question & Answer: The total fixed costs per year for the company are \$3, 690,000. a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that the…..
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 Individual partnership Corporation Total A Expected number of tax preparation 60000 4000 16000 80000 B Variable cost per tax return \$180 \$900 \$1,800 C=A*B Total variable cost \$10,800,000 \$3,600,000 \$28,800,000 \$43,200,000 D Total fixed cost \$3,690,000 E=C+D TOTAL COST \$46,890,000 F Price charged per tax return \$200 \$1,000 \$2,000 G=A*F Total Revenue from preparing tax return \$12,000,000 \$4,000,000 \$32,000,000 \$48,000,000 H=G-E ANTICIPATED LEVEL OF PROFIT \$1,110,000

Anticipated Revenue=\$48,000,000

Anticipated Costs=\$46,890,000

Anticipated level of profit=\$1,110,000

b.COMPUTATION OF BREAK EVEN POINT:

Ratio of product mix:60:4:16

Or , 15:1:4

With this ratio:

For 20(15+1+4) tax preparation , expected variable cost and revenue and contribution margin is given below:

 Individual partnership Corporation Total A number of tax preparation 15 1 4 20 B Variable cost per tax return \$180 \$900 \$1,800 C=A*B Total variable cost \$2,700 \$900 \$7,200 \$10,800 D Price chared per tax return \$200 \$1,000 \$2,000 E=A*D Total Revenue from preparing tax return \$3,000 \$1,000 \$8,000 \$12,000 F=E-C Contribution margin per 20 tax returns \$1,200

Contribution margin per 20 tax return of the given product mix=\$1,200

Fixed cost=\$3,690,000

BREAK-EVEN POINT=(3690000/1200)*20 tax returns=61,500

Individual tax return=(61500/20)*15=46125

Partnership tax return=(6150/20)=3075

Corporate tax return=(6150/20)*4=12300

The revenue at Break even point is given below:

 Type of Product Number of tax preparation Revenue per return Total revenue Variable cost per return Total Variable cost Individual 46125 \$200 \$9,225,000 \$180 \$8,302,500 partnership 3075 \$1,000 \$3,075,000 \$900 \$2,767,500 Corporation 12300 \$2,000 \$24,600,000 \$1,800 \$22,140,000 Total 61500 \$36,900,000 \$33,210,000 Variable cost \$33,210,000 Fixed cost \$3,690,000 Total Cost \$36,900,000 Profit \$0

c.BREAK EVEN VOLUME WITH CHANGED PRODUCT MIX:

CALCULATION OF CONTRIBUTION MARGIN IS GIVEN BELOW:

 Individual partnership Corporation Total A number of tax preparation 6 1 3 10 B Variable cost per tax return \$180 \$900 \$1,800 C=A*B Total variable cost \$1,080 \$900 \$5,400 \$7,380 D Price chared per tax return \$200 \$1,000 \$2,000 E=A*D Total Revenue from preparing tax return \$1,200 \$1,000 \$6,000 \$8,200 F=E-C Contribution per 10 tax returns \$820

Contribution margin per 10 tax return of the given product mix=\$820

Fixed cost=\$3,690,000

BREAK-EVEN POINT=(3690000/820)Blocks=4500 Blocks=4500*10=45,000 tax preparation

Individual tax return=(45000/10)*6=27000

Partnership tax return=(45000/10)=4500

Corporate tax return=(45000/10)*3=13500

The revenue at Break even point is given below:

 Type of Product Number of tax preparation Revenue per return Total revenue Variable cost per return Total Variable cost Individual 27000 \$200 \$5,400,000 \$180 \$4,860,000 partnership 4500 \$1,000 \$4,500,000 \$900 \$4,050,000 Corporation 13500 \$2,000 \$27,000,000 \$1,800 \$24,300,000 Total 45000 \$36,900,000 \$33,210,000 Variable cost \$33,210,000 Fixed cost \$3,690,000 Total Cost \$36,900,000 Profit \$0