Question

Gilley Inc. sells a single product. Gilley's most recent income statement is given below: Sales (Sold...

Gilley Inc. sells a single product. Gilley's most recent income statement is given below:

Sales (Sold 4,000 units) $120,000

Variable costs: Variable manufacturing costs (48,000) Variable selling and general costs (20,000) Contribution margin 52,000 Fixed costs: Fixed manufacturing costs (30,000) Fixed selling and general costs (10,000) Operating income $12,000

How many units must be sold to achieve net income (after tax) of $15,000? Assume income tax rate of 40%. Compute the new "break-even point" in units if fixed manufacturing costs are increased by 10,000, and a target operating income is $18,000. (SHOW WORK)

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Answer #1

Answer to Q1

Units to be sold for NEt income of $15,000 after tax, tax rate is 40% means before tax income should be $15,000/0.60 ; $25,000

Units sold = Fixed cost + Desired profit / CM per unit

= ($30,000+$10,000+$25,000)/$52,000/4000 ; 5,000 units

Answer to Q2

New Break Even point ; Fixed cost + Desired profit / CM per unit

; $30,000+10,000+10,000 / $13 ; 3846 Units

Will not ocnisdered the Target income as breakeven point assume there is no profit in business, so only fixed cost increase in above calculation is considered.

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