Assume that last year, Cliff Consulting, a firm in Berkeley, CA, had the following contribution income statement:
Question:
Assume that last year, Cliff Consulting, a firm in Berkeley, CA, had the following contribution income statement:
CLIFF CONSULTING Contribution Income Statement For the Year Ended September 30 | ||
---|---|---|
Sales revenue | $ 1,200,000 | |
Variable costs | ||
Cost of services | $ 480,000 | |
Selling and administrative | 60,000 | 540,000 |
Contribution margin | 660,000 | |
Fixed Costs -selling and administrative | 440,000 | |
Before-tax profit | 220,000 | |
Income taxes (21%) | 46,200 | |
After-tax profit | $ 173,800 |
(a) Determine the annual break-even point in sales revenue.
Round contribution margin ratio to two decimal places for your calculation. Round final answer to nearest dollar.
(b) Determine the annual margin of safety in sales revenue.
Use rounded answer from above for calculation.
(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $80,000?
Use rounded contribution margin ratio (2 decimal places) for your calculation.
Round your answer to the nearest dollar.
(d) With the current cost structure, including fixed costs of $440,000, what dollar sales revenue is required to provide an after-tax net income of $250,000?
Use rounded contribution margin (2 decimal places) for calculation. Round your answer to the nearest dollar.
(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.
Use rounded contribution margin (2 decimal places) for variable cost/contribution margin computations. Round your answers to the nearest dollar.
Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.
CLIFF CONSULTING Income Statement | |
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Sales | Answer
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Variable costs | Answer
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Contribution margin | Answer
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Fixed costs | Answer
|
Net income before taxes | Answer
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Income taxes (21%) | Answer
|
Net income after taxes | Answer
|
Financial Accounting The Impact on Decision Makers
ISBN: 978-1305793194
10th edition
Authors: Gary A. Porter, Curtis L. Norton