Question

Problem 4 - Break-Even and Cost-Volume-Profit Analysis
The PC Supply Company manufactures memory cards that sell to wholesalers for $2.00 each.  PC Supply produced and sold 10,000 cards during October 2018.
		Variable Costs per card:			Fixed Costs per Month:
		Direct materials	$0.30		Factory overhead	$4,000
		Direct labor	0.25		Selling and administration	3,000
		Factory overhead	0.25		Total	$7,000
		Selling and Admin	0.15
		Total	$0.95
Part 1:  Calculate break-even units rounding to a whole number.   Show your calculations, and describe in one sentence what this means for the company.
Part 2:  What happens if fixed costs increase from $7000 to $10,000.  Calcuate break-even units rounding to a whole number.  Show your calculations, and describe in one sentence what this means for the company.
Part 3:  Using the original fixed costs of $7000, what happens if the company wants to plan on a monthly profit of $10,000?  Calculate sales units and round to the whole number.  Show your calculations, and describe in one sentence what this means for the company.
Part 4:  If PC Supply is subject to a 40% income tax rate, determine the dollar sales volume  required to earn a monthly after-tax profit of $15,000.  Show your calculations.

Answer 1

1	Fixed Cost	7000	A		Sales	2.00
	Contribution Margin	1.05	B		Less: Variable Cost	0.95
	Break Even Units	6667	A/B		Contribution Margin	1.05
					Contribution Margin Ratio	52.50%
	Company needs to sell atleast 6667 Units to be at no profit no loss situation
2	Fixed Cost	10000	A
	Contribution Margin	1.05	B
	Break Even Units	9524	A/B
	Company needs to sell atleast 9524 Units to be at no profit no loss situation
3	Desired Profit	10000
	Add: Fixed Cost	7000
	Total CM Required	17000	A
	Contribution Margin	1.05	B
	Units to be Sold	16190	A/B
	Company needs to sell atleast 16190 Units to be earned desired profit
4	After Tax Profit	15000
	Add: Income Taxes	10000
	Before Tax Profit	25000	(15000/(1-40%)
	Add: Fixed Cost	7000
	Total CM Required	32000	A
	Contribution Margin Ratio	52.50%	B
	Sales Volume	60952	A/B
	Company needs to Sell atleast Sales value of 60952 to be earned desired profit