##### Question

In: Computer Science

# STRATEGIC COST MANAGEMENT - BREAK-EVEN POINT AND CVP ANALYSIS

Cornwell Company is in business since 2010, makes swimwear for professional athletes. Analysis of the firm's record for the year reveals the following:

Average swimsuit selling price                      $140 Average swimsuit expenses: Direct Material$60

Direct labor                                                  25

Annual fixed cost:

Selling                                                       $20,500 Administrative 48,000 The company's tax rate is 40 percent. Daisy Rin, company president, has asked you to help her answer: How much revenue must be generated to realize$79,900 of after-tax earnings? How many swimsuits would this represent?

## Solutions

##### Expert Solution

After-tax earnings

Before-tax income = After-tax income/ 1-tax rate

= $79,900/0.60 =$133,166.67

Target Sales Revenue = Fixed Cost +Target profit margin/Sales Price (per unit) - Variable cost (per unit)/Sales Price

= $68,500 +$133,166.67/$140-$100/$40 =$201,666.67/0.28571428571

= $705,833.33 Number of swimsuits = Target Sales Revenue/ Sales Price =$705,833.33/$140 = 5,041.67 or 5,042 swimsuits$705,833.33 revenue after-tax

5,041.67 or 5,042 swimsuits