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    sydneypettit's Avatar
    sydneypettit Posts: 4, Reputation: 1
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    #1

    Oct 20, 2014, 03:09 PM
    How to do extensions of the CVP model with three types of tax returns
    Sell Block prepares three types of simple tax returns: individual, partnerships, and (small) corporations. The tax returns have the following characteristics:

    Individuals Partnerships Corporations
    Price charged per tax return $ 310 $ 1,000 $ 2,050
    Variable cost per tax return (including
    wage paid to tax preparer)    		 $ 260 $ 900 $ 1,860
    Expected tax returns prepared per year 56,000 7,000 7,000

    The total fixed costs per year for the company are $669,300.

    Required:
    (a) What is the anticipated level of profits for the expected sales volumes?
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    ma0641 Posts: 15,675, Reputation: 1012
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    #2

    Oct 20, 2014, 05:23 PM
    Good homework question, however, we don't do it for you. All of the numbers are in front of you except for figuring out gross revenue. Price-variable cost X # of returns
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    sydneypettit Posts: 4, Reputation: 1
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    #3

    Oct 20, 2014, 05:30 PM
    Im confused. I don't expect to just get an answer. Could you explain a little better on how to use the formula to get the expected sales volumes?
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    ma0641 Posts: 15,675, Reputation: 1012
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    #4

    Oct 20, 2014, 05:35 PM
    You have the price/return. Subtract the variable cost and multiply that by the number of expected returns. Look at the first example. 310-260=? Multiply by 56,000. What do you get? Do the same for all others. That is gross income. Subtract fixed =Net profit. The rest is up to you.
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    sydneypettit Posts: 4, Reputation: 1
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    #5

    Oct 20, 2014, 06:02 PM
    Okay thanks I get it now! Im sorry to bother you again, but I just have one more question. Part C. Suppose the product sales mix changes so that, for every ten tax returns prepared, six are for individuals, one is for a partnership, and three are for corporations. Now what is the break-even volume for Sell Block? Again, I'm sorry to bother, but I don't want to get this question wrong. I want to understand how to get the answer
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    #6

    Oct 20, 2014, 06:32 PM
    6+3+1 add up to 100% therefore 10, 30 and 60%. What is the breakeven? Sales = expenses.
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    sydneypettit Posts: 4, Reputation: 1
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    #7

    Oct 20, 2014, 06:51 PM
    So for example I would multiply 6 by the tax return? And then what do I do?

    Or wait... Do I just take 669,300/100?
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    ma0641 Posts: 15,675, Reputation: 1012
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    #8

    Oct 21, 2014, 12:38 PM
    What was the total gross revenue from the first part? They are proportional. First determine the ratios for the first answer. Then adjust the ratios to represent Part C 10%, 30%, 60%
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