Casey Business Consulting provides management consulting evaluations for clients at a price of $15,000 upon completion. Casey has variable costs of $8,000 per evaluation and fixed costs of $70,000 per month. Last month, Casey had an operating profit of $21,000. Casey has an effective tax rate of 40%. If Casey would like to attain its net income goal of $42,000 next month, how many consulting evaluations will the firm need to complete?

Question

Quizplus · Accepted Answer

If Casey wishes to achieve a net income goal of $42,000 and the firm's tax rate is 40%, then its pretax operating income level will need to be$42,000 ÷ (1 minus the tax rate of 40%) = $42,000 ÷ 60% = $70,000. Target pretax income of $70,000 + fixed costs of $70,000 = $140,000. Dividing thisamount by the contribution margin of $7,000 per audit ($15,000 sales F1F1F1S1?F1F1F10 $8,000 variable costs) yields the number of evaluations: $140,000 ÷ $7,000 = 20evaluations.

Casey Business Consulting Provides Management Consulting Evaluations for Clients at a Price