ezto.mheducation.com/hm.tpx a Search Assume that Limitless Labs, Inc., ofers thr
ID: 2338527 • Letter: E
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ezto.mheducation.com/hm.tpx a Search Assume that Limitless Labs, Inc., ofers three basic drug-testing services for Inc., offers three basic drug-testing services for professional athletes. Here are its prices and costs Price per Unit $ 520 825 4,050 Cost Units Sold per Unitper Year Basic Retest $ 130 400 2,830 700 200 100 Variable costs include the labor costs of the medical technicians at the lab. Fixed costs of $400,000 per year include building and equipment costs and the costs of administration. A unit is a routine drug test administered. A retest is given if there is concem about the results of the first test, particularly if the test indicates that the athlete has taken drugs that are on the banned drug list. Retests are not done by the laboratory that performed the basic test. A athlete andior a test that might be challenged in court. The laboratory does extra work and uses expensive expert technicians to ensure the accuracy of vital drug tests. Limitless Labs is subject to a 30 percent tax rate Required: a. How much will Limitless Labs eam each year after taxes? b. Assuming the above sales mix is the same at the break-even point, at what sales revenue does Limitless Labs break even? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar) c. At what sales revenue will the company earn $182,000 per year after taxes assuming the above sales mix? (Do not round Intermediate calculations. Round your final answer to the nearest whole dollar.)Explanation / Answer
Answer a. Basic Retest Vital Total No. of Units Sold 700 200 100 Selling Price per Unit 520.00 825.00 4,050.00 Less: Variable Cost per Unit 130.00 400.00 2,830.00 Contribution per Unit 390.00 425.00 1,220.00 Total Contribution 273,000.00 85,000.00 122,000.00 480,000.00 Less: Fixed Costs 400,000.00 Profit Before Taxes 80,000.00 Income Tax - 30% 24,000.00 Net Income 56,000.00 Answer b. Basic Retest Vital Total Sales 364,000.00 165,000.00 405,000.00 934,000.00 Contribution 273,000.00 85,000.00 122,000.00 480,000.00 Contribution Margin Ratio 51.39% Contribution Margin Ratio = Contribution / Sales BEP = Fixed Costs / Contribution Margin Ratio BEP = $400,000 / 51.39% BEP = $778,333.33 or say $778,333 (Approx.) Answer c. After Tax Income = $182,000 Income Before Tax = $182,000 / (1 - 30%) Income Before Tax = $260,000 BEP = ($400,000 + $260,000) / 51.39% BEP = $1,284,250 Answer d-1. Basic Retest Vital Total No. of Units Sold 100 500 250 Selling Price per Unit 520.00 825.00 4,050.00 Less: Variable Cost per Unit 130.00 400.00 2,830.00 Contribution per Unit 390.00 425.00 1,220.00 Total Contribution 39,000.00 212,500.00 305,000.00 556,500.00 Less: Fixed Costs 430,000.00 Profit Before Taxes 126,500.00 Income Tax - 30% 37,950.00 Net Income 88,550.00 Answer d-2. Yes Net Income will be increased by $32,550 ($88,550 - $56,000)
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