Question

Question 3 (20 MINUTES, 14 MARKS)

Part A

Sicilian Bakery had the following operating results, based on sales of 100,000 units, in 2020:

Sales                                                                          $2,000,000

Total variable Expenses                                         $1,200,000

Total fixed costs                                                       $400,000

The corporate tax rate was 30%.

REQUIRED:

1. If the company wanted to earn net income after tax of 7% of sales, what level of sales would be required to earn that amount?

Part B

Calculate the correct amount for each question mark:

Sales                                                              ????

Total VC                                                        $9,750

Total CM                                                        ????

Total fixed costs                                           $$$$

Operating income                                        $1,364

# units sold                                                    125

Selling price per unit                                   $130

Variable cost per unit                                  ????

CM per unit                                                   ????

CM ratio                                                         40%

BEP in sales $$$                                          ????

Answer 1

Net Income => (7% × $2,000,000) - 30% => $98,000. Contribution Margin Per Unit =>(SP - VC)/units => $800,000/100,000 = $8.

Units => (Fixed cost + Desire profit)/Contribution Margin per unit => ($400,000 + $98,000)/10 = 49,800 units.

Part - B

Sales (125 * $130) = $16,250.

Variable Cost => $9,750.

Total Contribution Margin => $6,500.

Fixed Cost => $6,500 - 1,364 = $5,136.

Variable Cost per unit => $130 * 60% = $78.

CM per unit => $130 * 40% = $52.

Breakeven Dollars => Fixed Cost/CM ratio => $5,136/40% => $12,840.

If you have any doubts please comment on the answer.