Exercise 3-8 (Part Level Submission) Wildhorse Recreation Products sells the Ama
ID: 2334826 • Letter: E
Question
Exercise 3-8 (Part Level Submission) Wildhorse Recreation Products sells the Amazing Foam Frisbee for $13. The variable cost per unit is $4; fixed costs are $37,000 per month.
What is the annual breakeven point in units? In sales dollars?
How many frisbees must Wildhorse sell to earn $27,000 in operating income?
What operating income must Wildhorse earn to realize net income of $16,700, assuming that the company is in the 25% tax bracket?
How many frisbees must Wildhorse sell to earn $16,700 in net income, assuming that the company is in the 25% tax bracket?
Explanation / Answer
Contribution margin per unit = Selling price per unit - Variable costs per unit
= 13 - 4
= 9
Contribution margin percentage = Contribution margin / Sales
= 9 / 13
= 0.69
Breakeven point in units = Fixed costs / Contribution margin per unit
= 37,000 / 9
= 4,111
Breakeven point in sales dollars = Fixed costs / Contribution margin percentage
= 37,000 / 0.69
= 53,623
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Units to be sold = (fixed costs + desired net operating income) / contribution margin per unit
= (37,000 + 27,000) / 9
= 7,111
-----------------------------------------------------
Net operating income = Net income / (1 - tax rate)
= 16,700 / (1 - 0.25)
= 22,267
-----------------------------------------------------
Units to be sold = (fixed costs + desired net operating income) / contribution margin per unit
= (37,000 + 22,267) / 9
= 6,585
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