Bidwell Company Data for the Bidwell Company are as follows: Sales (100,000 unit

Question

Bidwell Company Data for the Bidwell Company are as follows: Sales (100,000 units) $1,000,000 Costs fixed variable Raw material $ 0 $300,000 Direct labor 0 200,000 Factory costs 100,000 150,000 Selling & Admin. 110,000 50,000 Total costs $210,000 $700,000 910,000 Operating income $90,000 Required: 1.Based on the preceding data, calculate break-even sales in units. 2.If Bidwell Company is subject to an effective income tax rate of 40 percent, calculate the number of units Bidwell would have to sell to earn an after-tax profit of $90,000. 3.If fixed costs increase $31,500 with no other cost or revenue factors changing, calculate the break-even sales in units.

Explanation / Answer

1. Contribution Margin = Sales Revenue – Variable Costs Contribution Margin = $1,000,000 - $700,000 Contribution Margin = $300,000 Contribution Margin Per Unit = $300,000/100,000 Contribution Margin Per Unit = $3 Break even Units = Fixed Cost / Contribution Margin Per Unit Break even Units = 210,000 / 3 Break even Units = 70,000.................(answer) 2. Number of Units = Fixed Costs + After tax Profits / Contribution Margin Per Unit Number of Units = 210,000 + 90,000 / 3 Number of Units = 240,000...............(answer) 3. Break even Units = Fixed Cost / Contribution Margin Per Unit Break even Units = (210,000 + 31,500) / 3 Break even Units = 86,500.................(answer)

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