Exercise 21-23 CVP analysis using composite units LO P4

R&R Tax Service offers tax and consulting services to individuals and small businesses. Data for fees and costs of three types of tax returns follow. R&R provides services in the ratio of 5:3:2 (easy, moderate, business). Fixed costs total $18,000 for the tax season.

Type of Return Fee Charged Variable Cost

per Return Easy (form 1040EZ) $ 50 $ 30 Moderate (form 1040) 125 75 Business 275 100 (1) Determine the selling price per composite unit.

RatioFee Charged

Total per composite unitEasy (form 1040EZ)5

Moderate (form 1040)3

Business2

(2) Determine the variable costs per composite unit.

RatioVariable cost per return

Total per composite unitEasy (form 1040EZ)

Moderate (form 1040)

Business

Contribution margin

Choose Numerator:/Choose Denominator:=Break even units

/

=Break even units

Number per composite unitNumber of composite units to break even.

Units sales at the break-even pointEasy (form 1040EZ)

Moderate (form 1040)

Business