Question

Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs. Selling price per case (24 bottles) of juice $ 96 Variable cost per case (24 bottles) of juice $ 56 Fixed costs per year associated with this product $ 12,760,000 Income tax rate 40 % Required: a. Compute Odd Wallow Drinks's break-even point in units per year. b. How many cases must Odd Wallow Drinks sell to earn $1,914,000 per year after taxes on the juice?

Answer 1

Answer:

a. 319,000 units

b. 398,750 cases

Explanation:

a. The computation of the break even point in units is shown below:

= (Fixed cost) ÷ (Contribution margin per unit)  

where,  

Contribution margin per unit = Selling price per unit - Variable expense per unit

= $96 - $56

= $40

So, the break even point in point is

= ($12,760,000) ÷ ($40)

= 319,000 units

b. The computation of the number of cases sold to earn profit is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin per unit)

where,

Target profit is

= $1,914,000 × 100 ÷ 60

= $3,190,000

Now the break even point is

= ($12,760,000 + $3,190,000) ÷ ($40)

= 398,750 cases