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CHAPTER 16
Problem 16.31
Diketahui :
The office open : 360 days per year, 16 hours each day from 7:00 a.m to 11:00 p.m
Advertising : $500.000
Rent : (6.000 x $28) = $168.000
Charge to each new client $30 for the initial consultation, 20% favorable settlements
or judgments averaging $2.000 each.
Regular Wages : Lawyer $25, Paralegal $20, Legal Secretary $15,
Clerk-Receptionist $10
Regular Wages = ($25 + $20 + $15 + $10) x 16 hours x 360 days
= $403.200
Overtime Wages : Legal Secretary 200 hours and Clerk-Receptionist 200 hours and
paid at one and one-half times the regular wage
Overtime Wages = (200 hours x $15 x 1,5) + (200 hours x $10 x 1,5)
= $7.500
Fringe benefit expenses = 40% of wages paid and apply to full wages
= 40% x (Regular Wages + Overtime Wages)
= 40% x ($403.200 + $7.500)
= 164.280
Property Insurance : $22.000
Utilities : $32.000
Malpractice Insurance : $180.000
Depreciation office equipment : $60.000/$4 = $15.000
Required :
1. Determine how many new clients must visit the law office being considered by Don
Masters and his colleagues in order for the venture to break even during its first year of
operations :
Answer :
Fixed Costs :
Advertising
$500.000
Rent
168.000
Wages and fringe benefits :
Regular Wages
403.200
Overtime Wages
7.500
Fringe Benefits
164.280
Property Insurance
22.000
Utilities
32.000
Malpractice Insurance
180.000
Depreciation Office Equipment
15.000
Total Fixed Costs
$1.491.980
Break even
2.
Problem 16.34
Diketahui :
Budgeted Income Statement for the coming year Hammond Company :
Sales
$1.240.000
Less : Variable Expenses
706.800
Contribution Margin
$ 533.200
Less : Fixed Expenses
425.000
Income Before Taxes
$ 108.200
Less : Income Taxes
43.280
Net Income
$ 64.920
Required :
1. What is Hammonds variable cost ratio? Its contribution margin ratio?
Answer :
Variable Cost Ratio = Variable Expenses / Sales
= $706.800 / $1.240.000
= 0,57 or 57%
2.
Suppose Hammonds actual revenues are $200.000 greater than budgeted. By how much
will before-tax profits increase? Give the answer without preparing a new income
statement.
Answer :
Actual revenues : $200.000 greater than budgeted
Before-Tax Profit increase = Actual Revenues x Contribution Margin Ratio
= $200.000 x 0,43
= $86.000
So, before-tax profits will be increase $86.000
3.
How much sales revenue must Hammond earn in order to break even? What is the
expected margin of safety? (Round your answers to the nearest dollar)
Answer :
Break-even Sales Revenue
= Total Fixed Expenses / Contribution Margin Ratio
= $425.000 / 0,43
= $988.372,09
= $988.372 (Round to the nearest dollar)
Margin of Safety
4.
How much sales revenue must Hammond generate to earn a before-tax profit of
$130.000? An after-tax profit of $90.000? (Round your answers to the nearest dollar).
Prepare a contribution margin income statement to verify the accuracy of your last
answer.
Answer :
Revenue = (Fixed Expenses + Before-Tax Profit) / Contribution Margin Ratio
= ($425.000 + $130.000) / 0,43
= $1.290.697,674
= $1.290.697 (Round to the nearest dollar)
$1.337.209
762.209
$ 575.000
425.000
$ 150.000
60.000
$ 90.000