Question

**Can u show the steps and formula used for each question please and thank you!

Super Sales Company is the exclusive distributor for a high-quality knapsack. The product sells for $120 per unit and has a CM ratio of 25%. The company’s fixed expenses are $405,000 per year. The company plans to sell 14,000 knapsacks this year.

1. What are the variable expenses per unit?

2. Use the equation method for the following:

a. What is the break-even point in units and in sales dollars?

b. What sales level in units and in sales dollars is required to earn an annual profit of $117,000?

c. What sales level in units is required to earn an annual after-tax profit of $117,000 if the tax rate is 25%?

d. Assume that through negotiation with the manufacturer, Super Sales Company is able to reduce its variable expenses by $6 per unit. What is the company’s new break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

3. Use the formula method for the following:

a. What is the break-even point in units and in sales dollars?

b. What sales level in units and in sales dollars is required to earn an annual profit of $117,000?

c. What sales level in units is required to earn an annual after-tax profit of $117,000 if the tax rate is 25%?

d. Assume that through negotiation with the manufacturer, Super Sales Company is able to reduce its variable expenses by $6 per unit. What is the company’s new break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your final answers to the nearest whole number.

Answer 1

1. Variable expenses per unit = $ 120 x ( 1 -0.25 ) = $ 90

2.a.

Let the break-even quantity be X

PX = VX + FC + Profit

where P is the price per unit'

X is the number of units

V is the variable cost per unit, and

FC is total fixed cost.

Break-even point in units:

PX = VX + FC + 0

or 120 X = 90 X + 405,000

X = 405,000 /( 120 - 90) = 13,500 units

Break-even point in sales dollars = Price per unit x Break-even Sales Units = $ 120 x 13,500 = $ 1,620,000

b. Sales level required to earn annual profit of $ 117,000 : 17,400 units

120 X = 90 X + 405,000 + 117,000

or X = ( 405,000 + 117,000 ) / 30 = 17,400 units

Sales dollars to earn a profit of $ 117,000 = $ 120 x 17,400 units = $ 2,088,000

c. Before tax target profit = $ 117,000 / ( 1 - 0.25) = $ 156,000

Sales units required to earn after-tax profit of $ 117,000 = $ ( 405,000 + 156,000 ) / $ 30 = 18,700 units

Sales dollars required to earn after-tax profit of $ 117,000 = 18,700 units x $ 120 = $ 2,244,000

d. New variable expense per unit = $ 90 - $ 6 = $ 84

120 X = 84 X + 405,000

or New break-even point in units = 405,000 / 36 = 11,250 units

New break-even point in sales dollars = 11,250 units x $ 120 = $ 1,350,000

3. a. Contribution margin ( CM) per unit = $ 120 x 25 % = $ 30

Break-even point in units = Total FC / CM per unit = $ 405,000 / $ 30 = $ 13,500

Break-even point in sales dollars = Total FC / CM ratio = $ 405,000 / 0.25 = $ 1,620,000

b. Sales level required to earn profit of $ 117,000 = ( Total FC + Target Profit ) / CM per unit = $ ( 405,000 + 117,000 ) / $ 30 = 17,400 units

Sales dollars required to earn profit of $ 117,000 = ( Total FC + Target Profit ) CM ratio = $ ( 405,000 + 117,000 ) 0.25 = $ 2,088,000

c. Before-tax target profit = Desired After-tax Profit / ( 1 - t ) = $ 117,000 / ( 1 - 0.25) = $ 156,000

Sales level required to earn $ 156,000 = ( Total FC + Target Profit ) / CM per unit = $ ( 405,000 + 156,000 ) / $ 30 = 18,700 units

Sales dollars required to earn $ 156,000 = ( Total FC + Target Profit ) / CM ratio = $ ( 405,000 + 156,000 ) / 0.25 = $ 2,244,000

d. New variable expenses per unit = $ 90 - $ 6 = $ 84

New CM per unit = $ 120 - $ 84 = $ 36

New CM ratio = $ 36 / $ 120 = 0.30

New break-even point in units = $ 405,000 / $ 36 = 11,250 units

New break-even point in sales dollars = $ 405,000 / 0.30 = $ 1,350,000