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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
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