Endeavour Ltd. is a management consulting firm specialising in pension plans. Its billing rate to clients is $120 per hour, and variable costs average $80 per hour. Fixed costs are $38,000 per month. The income tax rate is 20%. If fixed costs increase by 5% and management increases its billing rate by 20%, what is the effect on the breakeven point, in billable hours?

Question

Quizplus · Accepted Answer

Increasing the billing rate by 20% increases the contribution margin per hour, which decreases the breakeven point despite the 5% increase in fixed costs.