A company provides several different services to its customers from a single office. Fixed costs of the office, including staff costs, are absorbed into the company's service costs using  an  absorption  rate  of  $25  per  consulting  hour  based  on  a  budgeted  activity  level  of 100,000 hours each period.

Variable costs and fee income are different depending on services provided, however the average contribution to salesratio is 35%. Calculate breakeven fee income?

Solution:

Calculate the breakeven fee income.

Break-even revenue= Fixed overhead / C/S ratio

Therefore: $2,500,000 / 0.35 = $7,142,857