Question
Nippon Company provides primarily two lines of service: accounting and tax. Accounting-related services represent 60% of its revenue and provide a contribution margin ratio of
Nippon Company provides primarily two lines of service: accounting and tax. Accounting-related services represent 60% of its revenue and provide a contribution margin ratio of 30%. Tax services represent 40% of its revenue and provide a 45% contribution margin ratio. The company's fixed costs are $9,000,000. Instructions 1. Calculate the revenue in total and then from each type of service that the company must achieve to break even. 2. The company has a desired net income of $1,800,000. What amount of revenue would Nippon earn from tax services if it achieves this goal with the current sales mix? 3. Calculate the company's degree of operating leverage, assuming the desired net income of $1,800,000 and expected contribution margin are achieved.
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