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Cost-Volume-Profit, Margin of Safety
Steven Kissick is a Kingston-based lawyer who has been in practice for several years. He knew that it would take some
time to establish himself and hopefully generate enough revenue to make a decent living. His financial statements for his
year ended June 30, 2018, are as follows:
Steven Kissick, Lawyer
Income Statement
For the year ended June 30, 2018
Revenue
$180,000
Direct Costs of Practice:
Variable
66,000
Fixed
88,000
Gross Margin
$26,000
Indirect Costs of Practice:
Variable
17,500
Fixed
110,000
Operating Income/(Loss)
($101,500)
Income Tax (27.5%)
0
Net Loss
($101,500)
Required:
Round the contribution margin percentage to two decimal places and use in subsequent computations. Round your final
answers to the nearest dollar.
1. How much revenue must Kissick generate to break even?
2. How much revenue must Kissick generate to generate after-tax income of $150,000?
3. If his billing rate is $350 per hour, is the answer for Requirement 2 reasonable?