Fixed costs to be incurred are 250,000 for the production 15000 units The next 4
ID: 2382072 • Letter: F
Question
Fixed costs to be incurred are 250,000 for the production 15000 unitsThe next 45000 units cause fixed costs to increase by 350,000.
Total fixed costs to be incurred are 900,000 for more than 60,000 units.
The product will sell for 48 per unit.
Variable costs are 38 for the first 15,000 units.
Variable costs are 36 for the next 45,000 units
Variable costs are 32 for units above 60,000.
Desired after-tax profit is 528,000
The appropriate tax rate is 34%
A. Compute the after tax loss at 15,000 units
B. Compute the after tax profit at 60,000 units
C. How many units must be produced and sold to achieve the desired profit?
Explanation / Answer
A.
Sales
720,000
Less Fixed costs
250,000
Less Variable costs
570,000
Income before tax
-100,000
Tax
0
Net Loss after tax
-100,000
Answer: -$100,000 (loss)
B.
Sales
2,880,000
Less Fixed Costs
600,000
Less variable costs
2,190,000
Income before tax
90,000
Tax
30,600
Net Income after tax
59,400
Answer: $59,400
C.
After tax profit on the first 60,000 units is 59,400. Desired after tax profit is 528,000, which is a difference of 468,600. You need an additional profit of 710,000 to achieve this after tax profit. For the additional units that must be produced for this much additional profit, there will be an additional 300,000 in fixed costs and variable costs of 32 per unit for these units. Looking at just these units, then the sales price minus their variable costs (48 – 32 = 16), gives a contribution margin per unit of $16.
Add the further increase in profit 710,000 and the further increase in fixed costs of 300,000 to get 1,010,000 and then divide by the contribution margin per unit 1,010,000/16 = 63125, which is how many more you need. So you need a total of 63,125 + 60,000 = 123,125
Answer: 123,125 units
Sales
720,000
Less Fixed costs
250,000
Less Variable costs
570,000
Income before tax
-100,000
Tax
0
Net Loss after tax
-100,000
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