Question

Super Sales Company is the exclusive distributor for a high-quality knapsack. The product sells for $140 per unit and has a CM ratio of 40%. The company’s fixed expenses are $441,000 per year. The company plans to sell 8,000 knapsacks this year.

Required:

1. What are the variable expenses per unit?

2. Use the equation method for the following:

a. What is the break-even point in units and in sales dollars?

b. What sales level in units and in sales dollars is required to earn an annual profit of $105,000?

c. What sales level in units is required to earn an annual after-tax profit of $105,000 if the tax rate is 25%?

d. Assume that through negotiation with the manufacturer, Super Sales Company is able to reduce its variable expenses by $7 per unit. What is the company’s new break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

3. Use the formula method for the following:

a. What is the break-even point in units and in sales dollars?

b. What sales level in units and in sales dollars is required to earn an annual profit of $105,000?

c. What sales level in units is required to earn an annual after-tax profit of $105,000 if the tax rate is 25%?

d. Assume that through negotiation with the manufacturer, Super Sales Company is able to reduce its variable expenses by $7 per unit. What is the company’s new break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

Answer 1

Answers.

1. Variable expense per unit=$84

2. a. Break even point in units= 7875 units

Break even point in dollars=$1102500

b. Sales level in units=9750 units

C. Sales level in units= 10375 units

d. Break even point in units= 7000 units

Break even point in dollars=$980000