Kline Consulting is a service organization that specializes in the design, installation, and ser¬

vicing of mechanical, hydraulic, and pneumatic systems. For example, some manufacturing firms, with machinery that cannot be turned off for servicing, need some type of system to lubricate the machinery during use. To deal with this type of problem for a client, Kline de¬

signed a central lubricating system that pumps lubricants intermittently to bearings and other moving parts.

The operating results for the firm in 2000 are as follows:

In 2001, Kline expects variable costs to increase by 5% and fixed costs by 4%.
Required:
1. What is the contribution margin ratio for 2000?
2. Compute Kline's break-even point for 2000 in dollars.
3. Suppose that Kline would like to see a 6% increase in net income in 2001. What percent (on average) must Kline raise its bids to cover the expected cost increases and obtain the desired net income? Assume that Kline expects the same mix and volume of ser¬
vices in 2001 as in 2000.
4. In 2001, how much revenue must be earned for Kline to earn an after-tax profit of $175,000? Assume a tax rate of 34%.

Transcribed Image Text:

Sales Less: Variable expenses $802,429 430,000 Contribution margin $372,429 Less: Fixed expenses Operating income 154,750 $217,679