Question

An engineering consulting firm measures its output in a standard service hour unit, which is a...

An engineering consulting firm measures its output in a standard service hour unit, which is a function of the personnel grade levels in the professional staff.

The variable cost is $60 per standard service hour. The charge-out rate is $80 per hour.

The maximum output of the firm is 150000 hours per year, and its fixed cost is $2000000 per year. For this firm,

(a) What is the breakeven point in standard service hours and in percentage of total capacity?

(b) What is the percentage reduction in the breakeven point if fixed costs are reduced 12%; if variable cost per hour is reduced 12%; and if the selling price per unit is increased by 12%? Give the comments of breakeven point sensitivity.

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