Question

1. The selling price, variable costs, annual fixed costs, annual depreciation charges, and marginal tax rate for the project are shown below.  If sales are equal to 14,000 units, what is the after-tax profit?
   Sales Price	$3.00
   Variable Costs	$1.40
   Fixed Costs	$15,000.00
   Depreciation	$6,000.00
   Tax Rate	35%

1. A mesquite farmer wants you to invest in his mesquite harvesting business.  He sells mesquite wood to several "Texas-style" steakhouses that serve authentic "Mesquite-smoked" steaks.  He promises to give you all profits for 5 years after covering operating costs and his salary and taxes each year.   Your analysis of his operation revealed the following cost and price data.

   Selling price per cord of mesquite	$72.00
   Variable costs (per cord)	$40.00
   Fixed Costs (per year)	$400,000.00
   Depreciation (per year)	$30,000.00
   Salary	$50,000.00
   Tax Rate	25%

   Based on this information, How many cords of mesquite wood must be harvested and sold the first year before there is any profit available to you? (Remember to include the farmer's salary in your costs that must be covered.)

1. A watermelon farmer wants you to invest in his watermelon business.  He sells watermelons to several roadside “farmer’s markets” every week.  He promises to give you all profits for 5 years after covering operating costs and his salary and taxes each year.   Your analysis of his operation revealed the following cost and price data.

   Selling price per watermelon	$6.00
   Variable costs (per melon)	$1.30
   Fixed Costs (per year)	$30,000.00
   Depreciation (per year)	$6,000.00
   Salary	$40,000.00
   Tax Rate	25%

   Based on this data, how many watermelons must be harvested and sold the first year before there is any profit available to you?

1. A mesquite farmer wants you to invest in his mesquite harvesting business.  He sells mesquite wood to several "Texas-style" steakhouses that serve authentic "Mesquite-smoked" steaks.  He promises to give you all profits for 5 years after covering operating costs and his salary and taxes each year.   Your analysis of his operation revealed the following cost and price data.

   Selling price per cord of mesquite	$72.00
   Variable costs (per cord)	$40.00
   Fixed Costs (per year)	$400,000.00
   Depreciation (per year)	$30,000.00
   Salary	$50,000.00
   Tax Rate	25%

   Based on these data, how much profit will you receive if he sells 18,000 cords?

1. A watermelon farmer wants you to invest in his watermelon business.  He sells watermelons to several roadside “farmer’s markets” every week.  He promises to give you all profits for 5 years after covering operating costs and his salary and taxes each year.   Your analysis of his operation revealed the following cost and price data.

   Selling price per watermelon	$6.00
   Variable costs (per melon)	$1.30
   Fixed Costs (per year)	$30,000.00
   Depreciation (per year)	$6,000.00
   Salary	$40,000.00
   Tax Rate	25%

   Based on these data, how much profit will you receive if he sells 20,000 melons?

Answer 1

Calculation showing after tax profit if sales is 14000 units :

Particulars	$
Sales (14000 × 3 )	42000
Variable Cost ( 14000 × 1.4 )	(19600)
Contribution	22400
Fixed Cost	(15000)
Profit before depreciation and tax	7400
Depreciation	(6000)
Profit before tax	1400
Tax ( 1400 × 35/100 )	(490)
Profit after tax	910

Calculation showing number of cords of mesquite wood to be harvested and sold before there is any profit :

Particulars	$
Sales per cord	72
Variable cost per cord	(40)
Contribution per cord	32

Number of cords to be harvested :

Fixed Costs	400000
Depreciation	30000
Salary	50000
Total Expenses	480000
Contribution per cord	32
Number of cords to be sold	15000 cords

Calculation showing number of watermelons to be harvested and sold before there is any profit :

Sales per melon	6
Variable Cost per melon	(1.30)
Contribution per melon	4.70

Number of melons to be harvested :

Fixed Cost	30000
Deprecation	6000
Salary	40000
Total Expenses	76000
Contribution per unit	4.7
Number of melons to be sold	16170 melons

Calculation showing profit if 18000 cords are sold :

Sales ( 18000 × 72 )	1296000
Variable Cost ( 18000 × 40 )	(720000)
Contribution	576000
Fixed Cost	(400000)
Salary	(50000)
Profit before depreciation and tax	126000
Depreciation	(30000)
Profit before tax	96000
Tax (96000 × 25/100)	(24000)
Profit after tax	72000

Calculation showing profit if 20000 melons are sold :

Sales ( 20000 × 6 )	120000
Variable Cost ( 20000 × 1.30 )	(26000)
Contribution	94000
Fixed Cost	(30000)
Salary	(40000)
Profit before depreciation and tax	24000
Depreciation	(6000)
Profit before tax	18000
Tax (18000 × 25/100)	(4500)
Profit after tax	13500