E$16-25.$ Computing Break$-$Even and Margin of Safety

L$016-3$

Assume that last year, Cliff Consulting, a firm in Berkeley, CA$,$ had the following contribution income statement.

MBC Consulting

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$16-29$

Module $16$ Cost$-$Volume$-$Profit Analysis and Planning

$($c$)$ Cambridge Business Publishers

CLIFF CONSULTING

Contribution Income Statement

For the Year Ended September $30$

Sales revenue. $q,$

Variable costs

Cost of services $q,$

Selling and administrative. $q,$

Contribution margin $q,$

Fixed costs$-$selling and administrative

Before$-$tax profit $q,$

Income taxes $21\%q,$

After$-$tax profit. $q,$

$$480,000$

$\backslash$table$[[60,000,,540,000],[,,660,000],[,,440,000],[,,220,00],[,,46,200],[,$$$,173,800]]$

$$1,200,000$

Required

a$.$ Determine the annual break$-$even point in sales revenue.

b$.$ Determine the annual margin of safety in sales revenue.

c$.$ What is the break$-$even point in sales revenue if management makes a decision that increases fixed costs by $$80,000?$

d$.$ With the current cost structure, including fixed costs of $$440,000,$ what dollar sales revenue is required to provide a before$-$tax profit of $$350,000?$

$e.$ Prepare an abbreviated contribution income statement to verify that the solution to requirement $d$ will provide the desired before$-$tax profit.