Computer Problem- Computer Tax
Kerry Dodson owns and operates an income tax preparation service and is trying to determine his rates for 2015. Last year Kerry decided to work with a local bank that processes returns directly to the IRS. He believes this relationship should really help his business. He is developing his budget for 2015 and has the following information available:
Estimated charge per tax return: $350
Variable cost of material necessary to prepare each return: $12.50
Secretarial cost: $18,000/year
Administrative costs: $10,000/year
Depreciation: $ 15,000/year
Rent: $12,000/year
Cost of continuing education: $2,000/year
Required:
1. What are the contribution margin, the break-even volume, and the break-even sales in dollars?
2. Prepare a variable costing income statement for Dodson, assuming that he prepared 300 returns.
3. Dodson is considering advertising his service, which will cost an additional $2,000 per year. In addition, he would like to consider raising his rate by 15 percent.
He believes both changes will increase total volume by 12 percent. Complete Questions 1 and 2 using this new information.
4. Prepare a budgeted variable costing income statement that compares volumes of 80 percent, 90 percent, 100 percent, 110 percent, and 120 percent of break-even volume, based on Question 3.
5. Use tutorial 10 as reference for your work. (Analyzing financial data to maximize profits).