Problem 10.56

Break-even; multiple products; contribution margin ratio Taff services offers three core accounting and bookkeeping services. After a cost behavior study, the following profitability analysis has been prepared: Bookkeeping Advisory Account Mgt Total Fees 300,000 160,000 120,000 580,000 Less: Variable costs 180,000 96,000 72,000 348,000 Contribution margin 120,000 64,000 48,000 232,000 Direct fixed costs 25,000 35,000 18,000 78,000 Common fixed costs Utilities 31,000 Other administration 36,000 Total fixed costs 145,000 Profit 87,000 The management of Taff Services estimates that the total fees mix (52%, 28%, 20%) is generally representative. Required: a. Calculate the contribution margin ratios for each of the three areas of activity, and in total b. Using the contribution margin ratio, calculate the level of fees required to break-even c. Prepare an income statement of break-even level of fees as calculated in (b)