Question

The following data pertains to Logan Company:

Selling price per unit $300.00   

Variable expenses per unit    $180.00   

Total fixed expenses $54,000   

Tax rate 30%

a.) Calculate the breakeven point in units.

b.) How many units must Kinney sell to earn a before- tax profit of $24,000?

c.) If fixed expenses increase by $6,000, and variable expenses decrease by 10%, how many units must be sold to earn an after-tax profit of $28,000?

Answer 1

Contribution margin=Sales-Variable costs

1.Contribution margin=(300-180)=$120/unit

Hence breakeven=Fixed cost/Contribution margin

=(54000/120)=450 units.

2.Target Contribution margin=Fixed expenses+Target before tax profits

=(54000+24000)=$78000

Hence target units sold=(78000/120)=650 units.

3.New Contribution margin=300-(180*0.9)=$138

Total new fixed costs=(54000+6000)=$60000

Before tax profit required=$28000/(1-tax rate)

=$28000/(1-0.3)=$40000

Hence target Contribution margin=(60000+40000)=$100,000

Hence units to be sold=100,000/138=724.64 units(Approx).