E3-19 Multiple Product Panning with Taxes In the year 2013, Wiggings Processing
ID: 2331978 • Letter: E
Question
E3-19 Multiple Product Panning with Taxes
In the year 2013, Wiggings Processing Company had the following contribution income statement:
E3-19. Multiple Product Planning with Taxes In the year 2013, Wiggins Processing Company had the following contribution income statement LO3, 4 $1,200,00i0 Variable costs 200,000(620, 000) 580,000 Fixed costs (285,000) 295,000 (106,200) $ 188,800 80,000 Income taxes (36%). Required a. Determine the annual break-even point in sales dollars b. Determine the annual margin of safety in sales dollars c. What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $57,000? With the current cost structure, including fixed costs of $285,000, what dollar sales volume is required to provide an after-tax net income of $200,000? Prepare an abbreviated contribution income statement to verify that the solution to require- ment (d) will provide the desired after-tax income. d. e.Explanation / Answer
a) calculation of break even sale in dollars Break even sale in dollor = fixed cost/contribution margin Contribution margin =580000/1200000*100 contribution margin = 48.33% Break even point in sale dollor= 285000/48.33% break even point in sale dollar= 589696 b) Calculation of margin of safety in sale dolla margin of safety = actual sale -break even point margin of safety in sale dollar= 1200000-589696 margin of safety in sale dollar= 610304 C) Break even point in sale dollar %= fixedcost/conribution margin break even point in sale dollar= 342000/48.33% breakeven point in sle dollar =707635 D) desired after tax net income =200000 desired income before tax= net income after tax/(1-0.36) 200000/(1-0.360 = 312500 Desired sale volume = 285000+312500/48.33% = 1236292 Contribution income statement particulars amount Sale 1236292 less : variable cost (51.67% of sale) 638792 contribution margin 597500 less: fixed cost 285000 profit before tax 312500 less: tax @36% 112500 profit after tax 200000 hence the sale volume to get profit after tax will be 200000 equal to1236292
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