Question

The bookkeeper of TGIT Corporation had its May financial information on post-it-notes that were stuck to a computer monitor. The manager's son was visiting the office. He was attracted to the brightly coloured pieces of paper and proceeded to colour on them with equally brightly coloured markers. Figures were obliterated on some of the post-it-notes. The following information was retrieved:

Selling price per unit: $12 per unit
Units sold: 20,000 units
Variable cost per unit: $4.80 per unit
Fixed costs: $54,000

Help reconstruct the May data by providing the value for each of the unknowns listed below: (HINT - if you decide to use SALMON -- fill the retrieved information into SALMON and then complete the blanks in this quiz)

a) Total sales revenue: $ Answer

b) Total variable cost: $ Answer

c) Contribution margin per unit: $ Answer per unit

d) Total contribution margin: $ Answer

e) Operating income (income before taxes): $ Answer

f) Break even sales in units: Answer units

g) Variable cost ratio expressed in percent: Answer %

h) Contribution margin ratio in percent: Answer %

i) Break even sales in revenue dollars: $ Answer

k) The company wants a target profit before taxes of $125,000 in June?

What is the total contribution margin that the company would require in June to hit its target?

$ Answer

How many units would the company need to sell in June to hit its target in k)?

Answer units

l) If the company wanted to earn a target profit after taxes of $45,000 with a tax rate of 40%. what would its income before taxes need to be?

$ Answer

What is the total contribution margin that the company would require in June to hit its target in l)?

$ Answer

How many units would the company need to sell to earn $45,000 after taxes?

Answer units

Answer 1

a) Total sales = 20000*12$ = 240,000 $.

b) Total Variable Cost = 20,000 * 4.8 = 96000 $

c) Contribution margin per unit: 12-4.8 = $ 7.2 per unit

d) Total contribution margin: 7.2*20,000 = $ 144000

e) Operating income (income before taxes): $ 240000 - 96000 (ie Variable cost) - 54000 (Fixed Cost) = 90,000 $

f) Break even sales in units: Fixed Cost/ Contribution per unit ie, 54000/7.2 = 7500 units

g) Variable cost ratio expressed in percent: 4.8/12*100 = 40%

h) Contribution margin ratio in percent: 7.2/12*100 = 60%

i) Break even sales in revenue dollars: 7500 units (as per F) * 12$ = 90,000

k)

• The company wants a target profit before taxes of $125,000 in June? What is the total contribution margin that the company would require in June to hit its target?
  • Contribution = Fixed Cost + Profits = 54000+125000 =179,000 $

• How many units would the company need to sell in June to hit its target in k)?
  • Contribution/contribution per unit => 179000/7.2 = 24861 units

l) If the company wanted to earn a target profit after taxes of $45,000 with a tax rate of 40%. what would its income before taxes need to be?

Profit after tax	45000
Add; taxes (45000*40/60)	30000
Profit before taxes	75000

What is the total contribution margin that the company would require in June to hit its target in l)?

Contribution = Fixed Cost + Profits = 54000+75000 =129000$

How many units would the company need to sell to earn $45,000 after taxes?

Contribution/contribution per unit =129000/7.2 = 17917 units