Question

Calculator Cost-Volume-Profit, Margin of Safety Steven Kissick is a Kingston-based lawyer who has been in practice for several years. He knew that it would take some time to establish himself and hopefully generate enough revenue to make a decent living. His financial statements for his year ended June 30, 2018, are as follows: Steven Kissick, Lawyer Income Statement For the year ended June 30, 2018 $180,000 Revenue Direct Costs of Practice: Variable 66,000 Fixed 8৪,000 Gross Margin $26,000 Indirect Costs of Practice: Variable 17,500 Fixed 110,000 Operating Income/(Loss) ($101,500) Income Tax (27.5%) ($101,500) Net Loss Required: Round the contribution margin perocentage to two decimal places and use in subsequent computations. Round your final answers to the nearest dollar. 1. How much revenue must Kissick generate to break even? %$4 2. How much revenue must Kissick generate to generate after-tax income of $150,000? 3. If his billing rate is $350 per hour, is the answer for Requirement 2 reasonable?

Answer 1

Answer 1

Break even Point = Fixed Cost / Contribution ratio

=198000/53.61%

= $ 369,334

Answer 2

Desired sales (in $) = (Fixed Cost + Profit)/ Contribution ratio

= (198000 + 206896.55) / 53.61%

= $ 755,263

Answer 3

No

Calculations:

Contribution = Sales – variable cost

=$ 180,000- $ 66,000- $ 17,500

= $ 96,500

Contribution ratio = Contribution / Sales

= $ 96,500 / $ 180,000

= 53.61 %

In case of any doubt, please comment.