Question

Multiple Product Break-Even Analysis
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 $55,000.

			Standard	Multiform	Complex
Billing rate			$55	$130	$255
Average variable costs			(30)	(75)	(150)
Average contribution margin			$25	$55	$105
Number of returns prepared			1,750	500	250

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

Round contribution margin to three decimal places.

Round break-even sales volume to the nearest dollar.

Product	Weighted Selling Price	Weighted Contribution Margin
Standard	$Answer	$Answer
Multiform	Answer	Answer
Complex	Answer	Answer
Total	$ Answer	$ Answer
Contribution margin ratio:		Answer
Break-even sales volume:		$Answer

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

Round answer to the nearest dollar.

Answer 1

Product mix:
Standard	70%	=1750/(1750+500+250)
Multiform	20%	=500/(1750+500+250)
Complex	10%	=250/(1750+500+250)
Product	Weighted Selling Price	Weighted Contribution Margin
Standard	38.5	17.5
Multiform	26	11
Complex	25.5	10.5
Total	90	39
Contribution margin ratio:	0.433	=39/90
Break-even sales volume:	126923	=55000/0.433
b
Total sales=(1750*55)+(500*130)+(250*255)= $225000
Margin of safety in sales dollars=225000-126923= $98077