Question

An electrical product manufacturing company provides the following information related to plant revenue, cost, and capacity. The purpose is to find the answers to the questions that are of primary interest to the company. The data is as follows:

Plant capacity 55,000 units

Total fixed cost $ 550,000

Unit Price $ 40

Variable cost $ 18

Tax rate 15%

Expected profit $ 85,000

Contribution margin $ 22

6. How many units must be sold for the company to achieve the planned profit?

7. Show if the total income you obtained in the previous question is sufficient to recover the total fixed cost, the total variable cost, the tax expense, and the debit profit.

Answer 1

6.

Let, number of units to be sold = X

Then,

Expected profit = X*contribution margin - fixed cost

85000 = X*22 - 550000

X = (85000+550000)/22

X = 28863.64 units or 28864 units

So, the number of units to be produced, is 28863.64 units or 28864 units to achieve the stated profit.

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If the profit is after tax, then:

85000/(1-15%) = X*22 - 550000

X = (85000/(1-15%) + 550000)/22

X = 29545.45 units or 29545 units

So, the number of units to be produced, is 29545.45 units or 29545 units to achieve the stated profit.

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7.

Total revenue earned = 28864*40 = $1154560

Total variable cost paid = 28864*18 = $519552

Total fixed cost paid = $550000

Taxable income = 1154560 - 519552 - 550000

Taxable income = 85008

After tax income = 85008*(1-15%)

After tax income = $72256.8 or $72257

Above calculation shows that revenue earned, can pay the different costs and tax as well.