Problem 3-58 Extensions of the CVP Model-Multiple Products (LO 3-4) Sell Block p

Question

Problem 3-58 Extensions of the CVP Model-Multiple Products (LO 3-4) Sell Block prepares three types of simple tax returns: individual, partnerships, and (small) corporations. The tax returns have the following characteristics: S 310 1,000 2,050 Price charged per tax return Variable cost per tax return (including wage paid to tax preparer) Expected tax retuns prepared per year $ 260 56,000 900 7,000 1,860 7,000 The total fixed costs per year for the company are $889,300. Required: a. What is the anticipated level of profits for the expected sales volumes? $ 4.160,700 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 individualis, one is for a partnership, and three are for corporations. Now what is the break- even volume for Sell Block? retums 20p 888 Fa

Explanation / Answer

a. Anticipated profit Individuals Partneships Corporations Total Price charged per tax return 310 1000 2050 Less: Variable cost 260 900 1860 Contribution per tax return 50 100 190 * Expected tax returns 56000 7000 7000 Total contribution 2800000 700000 1330000 4830000 Less: fixed cost 669300 Anticipated profit 4160700 b. Break-even point=Fixed cost/Weighted average contribution per tax return Weighted average contribution per tax return: Contribution Weight Cont*Weight Individuals 50 8 400 Partneships 100 1 100 Corporations 190 1 190 10 690 (Weights are 56000:7000:7000 which can be simplified as 8:1:1) Weighted average contribution per tax return=690/10=69 Break-even point=669300/69=9700 returns c. Break-even point=Fixed cost/Weighted average contribution per tax return Weighted average contribution per tax return: Contribution Weight Cont*Weight Individuals 50 6 300 Partneships 100 1 100 Corporations 190 3 570 10 970 Weighted average contribution per tax return=970/10=97 Break-even point=669300/97=6900 returns

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