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In: Accounting
Q 3 Jassim Compagny is producing only one product. Two types of direct materials are used...
Q 3 Jassim Compagny is producing only one product. Two types of direct materials are used to produce this product direct material type A and direct material type B.
The estimated data for Jassim Compagny is as following:
Sales $90,000
Costs:
Direct materials type A $40,000
Hourly employees 15,000
Manager’s salary 10,000
Direct materials type B 5,000
Marketing 10,000
Total Costs 80,000
Budgeted pretax profit $ 10,000
The marketing costs include $5,000 that does not change with the change in sales volumes. The income tax rate is 20%.
a. Compute the revenues needed to achieve a target after-tax income of $30,000.
b. What is the margin of safety in revenue?
Solutions
Expert Solution
| Sales | $90,000 |
| Variable Costs: | |
| Direct materials type A | $40,000 |
| Hourly employees | $15,000 |
| Direct materials type B | $5,000 |
| Marketing | $5,000 |
| Contribution Margin | $25,000 |
| Contribution Margin ratio | 0.27777778 |
| Target-Post tax Profit | $ 30,000.00 |
| Tax rate | 20% |
| Pre tax Profit to be achieved(30000/100%-20%) | $ 37,500.00 |
| Calculation of fixed Cost | |
| Manager’s salary | $ 10,000.00 |
| Marketing | $ 5,000.00 |
| Fixed Cost | $ 15,000.00 |
| Revenue required to achieved target income | 15000+37500/0.27777778 |
| $ 189,000.00 | |
| Calculation of Breakeven Point | |
| Formula | Fixed cost/Contribution margin ratio |
| 15000/0.27777778 | |
| Breakeven Point | $ 54,000.00 |
| Calculation of margin of safety | |
| Formula |
Sales revenue- Breakeven Point |
|
90000-54000 |
|
| margin of safety |
$ 36,000.00 |
ekkarill92 answered 1 year agoRelated Solutions
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