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Account-Ants provides two lines of service: accounting and tax. Accounting-related services represent 75% of its revenue and provide a contribution margin ratio of 30%. Tax
Account-Ants provides two lines of service: accounting and tax. Accounting-related services represent 75% of its revenue and provide a contribution margin ratio of 30%. Tax services provide 25% of its revenue and provide a 45% contribution margin ratio. The company's fixed costs are $3,500,000. Instructions a) Calculate the revenue from each type of service that the company must achieve to break even. (5 Marks) b) The company has a desired net income of $1,800,000 and a tax rate of 30%. What amount of revenue would Account-Ants earn from tax services if they achieve this goal with the current sales mix? (3 Marks) c) Without doing any calculations what would the effect on net income be if instead of 75% of services being accounting-related services, the company only did 60% but still achieved the same total sales level? (Indicate higher, lower, or no effect) Explain. (1 Mark)
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