Counters and Black, CPAs, LLP had revenues last month of $70,000. Their variable labor costs consisted of 100 hours of partner-level labor at $150 per hour and 400 hours of staff labor at $50 per hour. Other variable costs were $2,000 for the month, and fixed costs are $336,000 on an annual basis. Based on this information, which of the following statements about last month's results is correct?

Question

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The company had labor costs of $35,000 last month: (100 hours of partner-level labor × $150 per hour) + (400 hours of staff labor × $50 per hour)= $15,000 + $20,000 = $35,000. There was an additional variable cost component of $2,000. Therefore, total variable costs were $37,000 for the month.Service revenues of $70,000 F1F1F1S1?F1F1F10 variable costs of $37,000 = contribution margin of $33,000. Contribution margin of $33,000 F1F1F1S1?F1F1F10 $28,000 of fixed costs permonth ($336,000 per year ÷ 12 months) = operating profit of $5,000 last month. The degree of operating leverage (DOL) = contribution margin of $33,000 ÷operating income of $5,000, or 6.6. Margin of safety is equal to the amount of current sales revenues that exceeds the break-even point in revenue dollars.Break-even in revenues for the month is equal to fixed costs for the month of $28,000 ÷ the contribution margin ratio of ($33,000 ÷ $70,000) or 47.14% =$59,398 as rounded to the nearest whole dollar. Therefore, the margin of safety is equal to current revenues of $70,000 last month minus the break-evensales revenue amount of $59,398, or $10,602.

Counters and Black, CPAs, LLP Had Revenues Last Month of $70,000