Company: Xi Consulting Services

Scenario: Service Cost Analysis

• Service Details:
  • Service A:
    • Revenue: $100,000
    • Variable Costs: $40,000
    • Fixed Costs: $30,000
• Service B:
  • Revenue: $150,000
  • Variable Costs: $50,000
  • Fixed Costs: $40,000

Requirements:

1. Contribution Margin Analysis:
   • Calculate the contribution margin and contribution margin ratio for each service (Service A and Service B) using marginal costing principles.

1. Break-Even Analysis:
   • Perform a break-even analysis to determine the sales revenue needed for Xi Consulting Services to break even, incorporating marginal costing insights.

1. Profitability Comparison:
   • Determine which service (Service A or Service B) is more profitable based on the contribution margin ratio calculated using marginal costing.

1. Sales Mix Optimization:
   • Recommend a sales mix that maximizes Xi Consulting Services' overall contribution margin, applying marginal costing concepts.

1. Cost Reduction Strategies:
   • Suggest two strategies Xi Consulting Services could adopt to reduce costs and improve profitability, based on marginal costing analysis.