1.Odd Wallow Drinks is considering adding a new line of fruit juices to its merc

Question

1.Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs:

Selling price per case (24 bottles) of juice

$

98

Variable cost per case (24 bottles) of juice

$

58

Fixed costs per year associated with this product

$

12,840,000

Income tax rate

40

%

Required:

a. Compute Odd Wallow Drinks's break-even point in units per year.

b. How many cases must Odd Wallow Drinks sell to earn $1,926,000 per year after taxes on the juice?

Selling price per case (24 bottles) of juice

$

98

Variable cost per case (24 bottles) of juice

$

58

Fixed costs per year associated with this product

$

12,840,000

Income tax rate

40

%

Explanation / Answer

Selling price per case (24 bottles) of juice 98 Variable cost per case (24 bottles) of juice 58 Contribution margin per case (24 bottles) of juice 40 Requiremnt 1 Break even point in Units per year = Fixed costs /Contribution Per unit    = $12,840,000/40 ' = 321,000 cases Requiremnt 2 Target net income 1926000 Add: income taxes (1926000/60*40%) 1284000 Earnings before tax 3210000 Add: Fixed cost 12840000 Required Contribution Margin 16050000 Cases must Odd wallow Drinks sell 401,250

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