Question

In: Accounting

Net Income Planning Superior Corporation sells a single product for $60 per unit, of which $36...

Net Income Planning Superior Corporation sells a single product for $60 per unit, of which $36 is contribution margin. Fixed costs total $72,000 and net income before income tax is $28,800.

Determine the following


a The present sales volume in dollars. $ Answer


b. The break-even point in units. Answer

units
c. The sales volume in units necessary to attain a net income before income tax of $39,600. Answer

units
d. The sales volume in units necessary to attain a net income before income tax equal to 20% of sales revenue. Answer

units
e. The sales volume in units necessary to attain an after-tax net income of $43,200 if the tax rate is 40%. Answer

units

Solutions

Expert Solution

  • All working forms part of the answer
  • General working

A

Sale price per units

$60

B

Contribution margin per unit

$36

C = (B/A) x 100

Contribution margin ratio

60%

D = A - B

Variable cost per unit

$24

  • Requirement ‘a’

A

Fixed Cost

$72,000

B

Net Income before Income tax

$28,800

C = A+B

Total Contribution margin

$100,800

D

Contribution margin ratio

60%

E = C/D

Present Sales Volume in $

$168,000

  • Requirement ‘b’

A

Fixed Cost

$72,000

B

Contribution margin per unit

$36

C = A/B

Break even point in units

                         2,000

  • Requirement ‘c’

A

Target Net Income

$39,600

B

Fixed Cost

$72,000

C = A+B

Total contribution margin required to earn target income

$111,600

D

Contribution margin per unit

$36

E = C/D

Sales volume in units neccesary

                         3,100

  • Requirement ‘d’

Let Total Sales $ be ‘$ X’, then

A

Target Net Income

0.2X

B

Fixed Cost

$72,000

C = A+B

Total contribution margin required to earn target income

0.2X + 72000

D

Contribution margin ratio

60%

E = C x Sales $

Contribution Margin

0.6X

Equation:

0.6X = 0.2X + 72000

0.6X - 0.2X = 72000

0.4X = 72000

X = 72000 / 0.4

X = 180000

F

Sales Dollar

$180,000

G

Sale price per unit

$60

H = F/G

No. of units required to earn target income

                         3,000

  • Requirement ‘e’

A

After Tax Net Income

$43,200

B

Tax rate

40%

C = A/60%

Before Tax Net Income

$72,000

D

Fixed Cost

$72,000

E = C+D

Total contribution margin required to earn target income

$144,000

F

Contribution margin per unit

$36

G = E/F

Sales volume in units

                         4,000


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