Question

Rose Corporation manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device: Direct labor $180 Direct materials 240 Factory overhead 105 Total variable production costs 525 Marketing costs 75 Total variable costs $600 Rose’s income tax rate is 40%, and annual fixed costs are $4,000,000.

Required: a) If Rose Corporation achieves a sales and production volume of 8,000 units, determine the net income (loss).

b) Determine the annual sales revenue to achieve an after tax net income of $540,000.

Answer 1

B	Selling Price	900				Income Statement:
	Variable Costs:					Selling Price	7200000
	Direct Labor	180				Variable Costs:
	Direct Material	240				Direct Labor	1440000
	Factory OH	105				Direct Material	1920000
	Marketing Costs	75				Factory OH	840000
	Total Variable Costs	600				Marketing Costs	600000
						Total Variable Costs	4800000
A	Contribution Margin	300
						Contribution Margin	2400000
A/B	Contribution Margin Ratio	33.33%				Less: Fixed Costs	4000000
						Income Before Tax	-1600000
						Less: Income Tax	0
						Income After Taxes	-1600000
						Desired After Tax Income	540000
						Add: Income Tax	360000
						Desired Before Tax Income	900000
						Add: Fixed Costs	4000000
					A	Required Contribution Margin	4900000
					B	Contribution Margin Ratio	33.33%
					A/B	Required Annual Sales	14700000