Question

In: Accounting

A company has a selling price of $20 a unit, variable costs of $10 a unit,...

A company has a selling price of $20 a unit, variable costs of $10 a unit, and fixed costs of $40,000.

A.What is the breakeven point in dollar sales?

B.What quantity must be sold to earn a profit of $60,000?

C.What is the Firm’s total contribution margin at breakeven?

D.How much revenue is needed to make an aftertax profit of $120,000? Assume a tax rate of 40%.

E.Assume the company sells 12,000 units and the total contribution margin increases by 10%, holding revenues constant, what is the income for the company?

F.Assume we have been selling 14,000 units. What is the net income if there is a 20% decrease in units sold?

G.By how much can fixed cost increase, if the firm increases its sales price by $4 and wants to make a profit of $40,000 by selling 9,000 units?

Solutions

Expert Solution

(A) Breakeven sales in units= Fixed Costs/ Contribution Margin per unit
contribution margin per unit=selling price-veriable cost
i.e20-10=10$
40,000/10=4,000units

Breakeven sales in Dollars= sales price per unit* Breakeven points in units
4,000units*20$=80,000$

(B)sales units to earn desired profit of 60,000$

Fixed Costs+Desired profit/ Contribution Margin per unit
40,000+60,000/10$=10,000units

(c)firms total contribution at Break even
AT Break even point Fixed cost=Contribution margin
so contribution margin=40,000$

(D)Revenue needed to earn after tax profit 1,20,000$
Tax rate 40%
so Before tax profit=1,20,000/1-40%=2,00,000$
Fixed Costs+Desired profit/ Contribution Margin per unit
40,000+2,00,000/10$=24,000units
sales in Dollers =24,000units*20$
=4,80,000$

(f)number of units sold decreases by 20%
present units sold=14,000
reduced units=14,000*20%=2,800units
so sales at praposed leveal=11,200units
Net income=contribution margin-fixed cost
contribution margin=11,200units*10$=1,11,200$
Fixed cost=40,000$
Net income=1,11,200-40,000
=72,000$

(g)increase in Fixed cost if selling price is 20+4=24$
so contribution margin=14$
sales units to earn desired profit of 60,000$

Fixed Costs+Desired profit/ Contribution Margin per unit
fixed cost+40,000/14=9,000units
Fixed cost=86,000$

so increase in fixed cost by 46,000$

ekkarill92 answered 2 years ago
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