Question

the carey company sold 100,000 units of its product at $20 per unit. variable costs are $14 per unit (manufacturing costs of $11 and selling costs of $3). Fixed costs are incurred uniformly throughout the year and amount to $792,000 (manufacturing costs of $500,000 and selling costs of $292,000). there are no beginning or ending inventories.

Required:

Determine the following:

1. The breakeven point for this product.

2. The number of units that must be sold to earn an income of $60,000 for the year (before income taxes).

3. The number of units that must be sold to earn an after-tax income of $90,000, assuming a tax rate of 40 percent.

4. The breakeven point for this product after a 10 percent increase in wages and salaries (assuming labor costs are 50 percent of variable costs and 20 percent of fixed costs).

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Selling price= $20 per unit

Variable costs= $14 per unit

Fixed costs= $792,000

A) To calculate the break-even point in units, we need to use the following formula:

Break-even point= fixed costs/ contribution margin

Break-even point= 792,000 / (20 - 14)= 132,000 units

B) We need to sum the $60,000 as they were fixed costs:

Break-even point= (fixed costs + desired profit)/ contribution margin

Break-even point= (792,000 + 60,000) / 6= 142,000 units

C) After-tax profit of $90,000.

t= 0.40

Break-even point= [(fixed costs + desired profit)/ (1-t)] / contribution margin

Break-even point= [(792,000 + 90,000)  / (1 - 0.4)] / 6= 367,500 units

D) 10% increase in wages:

Variable costs= 4*1.05= 4.2

Fixed costs= 792,000*1.02= 807,840

Break-even point= 807,840/ 3.8= 212,589 units