Question

In the year 2008, Wiggins Processing Company had the following contribution income statement:

WIGGINS PROCESSING COMPANY Contribution Income Statement For the Year 2008
Sales		$1,000,000
Variable costs
Cost of goods sold	$420,000
Selling and administrative	200,000	(620,000)
Contribution margin		380,000
Fixed Costs
Factory overhead	186,000
Selling and administrative	80,000	(266,000)
Before-tax profit		114,000
Income taxes (37%)		(42,180)
After-tax profit		$71,820

HINT: Round contribution margin ratio to two decimal places for your calculations below.

(a) Determine the annual break-even point in sales dollars.
$____

(b) Determine the annual margin of safety in sales dollars.
$_____

(c) What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $76,000?


(d) With the current cost structure, including fixed costs of $266,000, what dollar sales volume is required to provide an after-tax net income of $250,000?

Do not round until your final answer. Round your answer to the nearest dollar.
$_____

(e) Prepare an abbreviated contribution income statement to verify that the solution to part (d) will provide the desired after-tax income.

Round your answers to the nearest dollar. Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.

WIGGINS PROCESSING COMPANY Income Statement For the Year 200
Sales	$____
Variable costs	_______
Contribution margin	_____
Fixed costs	_______
Net income before taxes	______
Income taxes (37%)	______
Net income after taxes	$_____

Answer 1