Question

Cohen Company produces and sells socks. Variable costs are $5.40 per pair, and fixed costs for the year total $76,500. The selling price is $9 per pair.

Required:

1.	Calculate the breakeven point in units.

2.	Calculate the breakeven point in sales dollars.

3.	Calculate the units required to make a before-tax profit of $45,000.

4.	Calculate the sales in dollars required to make a before-tax profit of $38,700. (Do not round intermediate calculations.)

5.	Calculate the sales, in units and in dollars, required to make an after-tax profit of $28,700 given a tax rate of 30%. (Do not round intermediate calculations. Round your answers up to the nearest whole number.)

Answer 1

1. Break Even Point in Units = Fixed Cost / Contribution Margin Per Unit

= $ 76,500 / ( Selling Price Per Unit - Variable Cost Per Unit)

= $ 76,500 / ($ 9- $ 5.40)

= 21,250 Units

2. Break Even Point in Sales Dollars =

=Fixed Cost / Contribution Margin Ratio

= $  76,500 / 40%

= $ 191,250

Contribution Margin ratio = Contribution Margin Per Unit / Selling Price Per Unit *100

= $ 3.6/$ 9*100

= 40%

3. Required Profit = $ 45,000

Add: Fixed Cost = $ 76,500

Hence, Contribution Required = $ 121,500

Contribution Margin Per Unit = $ 3.60

Hence units required to make a before-tax profit of $45,000 = Contribution Margin Required /Contribution Margin Per Unit

= $ 121,500 / $ 3.60

= 33,750 Units

d.

Required Profit = $ 38,700

Add: Fixed Cost = $ 76,500

Hence, Contribution Required = $ 115,200

Contribution Margin Ratio = 40%

Hence dollars sales required to make a before-tax profit of $45,000 = Contribution Margin Required /Contribution Margin Ratio

= $ 115,200/ 40%

= $ 288,000