Part - a

Service Fee per service

Less: Variable Cost per service
Contribution margin per service
Fixed Cost

$6,000
($1,200)
$4,800
$800,000

Breakeven point in units = Fixed Cost / Contribution Margin per service

Breakeven point = $800,000 / $4,800
Breakeven Point

167 families

Part - b
Service revenue
Less: Variable Cost
Contribution margin
Less: Fixed Cost

$600,000
($120,000)
$480,000
($800,000)

Net Loss

($320,000)

Part - c
Units to earn targeted profit of $100,000 = (Fixed Cost + Targeted Profit) / Contribution Margin per service
Units to earn targeted profit of $100,000 = ($800,000 + $100,000) / $4,800
Units to earn targeted profit of $100,000 =

188 families

Part - d
Service Fee per service
Less: New Variable Cost per service
Contribution margin per service
New Fixed Cost

$6,000
($1,900)
$4,100
$800,000

Breakeven point in units = Fixed Cost / Contribution Margin per service

Breakeven point = $800,000 / $4,800
Breakeven Point

195 families

Part - a
Current sale
i
ii

iii

$250,000

Variable Contract
Fixed Contract

$17,500
$60,000

7%

Mixed Contract:
Variable Contract
Fixed Contract

$10,000
$30,000

4%

Total

$40,000

Variable contract is the best option

Part - b
Current sale
i
ii

iii

$600,000

Variable Contract
Fixed Contract

$42,000
$60,000

7%

Mixed Contract:
Variable Contract
Fixed Contract

$24,000
$30,000

4%

Total

$54,000

Variable contract is the best option

Part - c
Current sale
i
ii

iii

$900,000

Variable Contract
Fixed Contract

$63,000
$60,000

7%

Mixed Contract:
Variable Contract
Fixed Contract

$36,000
$30,000

4%

Total

$66,000

Fixed contract is the best option

Part - a
Total fixed cost
Total variable costs
Total revenue

$2,400,000
$1,500,000
$4,500,000

Contribution Margin

$3,000,000

Contribution Margin Ratio

66.67%

Breakeven sales = Fixed Costs / CM Ratio

Breakeven sales = $2,400,000 / 66.67%
Breakeven sales
Level of volume reduction

$3,600,000
$900,000

Part - b
Committed fixed cost is the cost that can't be avoided like depreciation expense for the assets and
discretionary fixed cost is the cost that can be avoided like the rent of the business premises.
This is important in making decision as it will help the management to determine the actual fixed cost
that will eventually require to determine the breakeven point.

Liquidity:
Current Ratio
Current Assets Current Liabilities

Solvency:
Debt to Total Assets Ratio
Total Liabilities Total Assets

Activity:
Accounts Receivable Turnover Ratio
Sales ((AR 20X2 + AR 20X3)/2)

Profitability:
Net Profit on Sales
Net Income Revenue

Operating:
Book Value Per Share
Total Stockholder's equity Shares outstanding

4.70
$940,000 $200,000

0.42
$1,000,000 $2,375,000

5.27
$1,685,000 ($350,000+$290,000)/2

9.50%
$160,000 $1,685,000

6.88
$1,375,000 ($100,000/$0.50)