Question

Klean N’ Kind Corporation sells one product which has a sales price of $250 each. The company operates with variable costs for this one product of $200 per unit. The company’s monthly fixed costs are $15,000. The applicable tax rate is 20%.
Required:
Using the Contribution Margin approach perform the following:
1. Calculate the contribution margin per unit.
2. Given a desired after tax profit of $68,000, compute the before tax profit.
3. Calculate the sales units needed to achieve the after-tax profit of $68,000.
4. Compute the contribution margin ratio.
5. Using your answer to Part 4, calculate the dollar sales needed to achieve an after-tax profit of $68,000.

Answer 1

1)	Contribution margin per unit = selling price - variable cost per unit
	=250 - 200
	50	per unit
2)	Before tax profit = after tax profit / (1 - tax rate)
	=68000 / (1-20%)
	85000
3)	Target Units = (Fixed cost + target profit/(1-tax rate)) / Contribution per unit
	=(15000 + 68000/(1-20%)) / 50
	2000	Units
4)	Contribution margin ratio = contribution per unit / selling price * 100
	=50/250*100
	20%
5)	Target sales in dollar = (Fixed cost + target profit/(1-tax rate)) / Contribution margin ratio
	=(15000 + 68000/(1-20%)) / 20%
	500,000