Question

Head-Gear Company produces helmets for bicycle racing. Currently, Head-Gear charges a price of $230 per helmet. Variable costs are $92.00 per helmet, and fixed costs are $1,158,000. The tax rate is 25 percent. Last year, 14,000 helmets were sold.

Required:

1. What is Head-Gear's net income for last year?
$

2. What is Head-Gear's break-even revenue? In your computations, round the contribution margin ratio to two decimal places.
$

3. Suppose Head-Gear wants to earn before-tax operating income of $843,000. How many units must be sold? Round to the nearest whole unit.
units

4. Suppose Head-Gear wants to earn after-tax net income of $601,200. How many units must be sold? In your computations, round dollar amounts to the nearest dollar. Round your final answer to the nearest whole unit.
units

5. Suppose the income tax rate rises to 35 percent. How many units must be sold for Head-Gear to earn after-tax income of $610,740? Round to the nearest whole unit.
units

Answer 1

	Selling price per unit				230
	Variable cost per unit				-92
	Contribution margin per unit				138
1)	Contribution margin		14000	*	138	=	1932000
	Fixed cost						1,158,000
	income before tax						774,000
	less	income tax					193500
	Net income						580,500
2)	BEP(revenue)=		Fixed cost/contribution margin ratio
			1,158,000/60%
			1,930,000
3)	BEP	=	(fixed cost+ income before tax)/contribution margin per unit
			(1,158,000+843,000)/168
			11911
4)	After tax net income =			601200
	tax rate =			25%
	income before tax=			801600
			(1,158,000+801600)/168
			14200
5)	After tax net income =			610740
	tax rate =			35%
	income before tax=			939600
			(1,158,000+939600)/168
			15200