Exercise D3-8 Reid Recreation Products sells the Amazing Foam Frisbee for $21. T

Question

Exercise D3-8 Reid Recreation Products sells the Amazing Foam Frisbee for $21. The variable cost per unit is $12; fixed costs are $44,000 per month. What is the annual breakeven point in units? In sales dollars? (Use your answer of breakeven units to calculate the breakeven point in dollars. Round answers to o decimal places, e.g 5,275 The breakeven point The breakeven sales frisbees LINK TO TEXT LINK TO TEXT LINK TO VIDEO LINK TO VIDEO How many frisbees must Reid sell to earn $28,000 in operating income? (Round answer to O decimal places, e.g. 5,275.) frisbees LINK TO TEXT LINK TO TEXT LINK TO VIDEO LINK TO VIDEO hat operating income must Reid earn to realize net income of $18,300, assuming that the company s in the 27% tax bracker Roundans er to cima aces o9-527 Operating income s LINK TO TEXT LINK TO TEXT LINK TO VIDEO LINK TO VIDEO

Explanation / Answer

Answer

1.

Contribution Per unit = Sales – Variable Cost

= 21 – 12

Contribution Per unit = $9 per nit

Breakeven Point (In units) = Fixed Cost / Contribution per unit

= $44,000 / $9 per unit

= 4,888.8

Breakeven Point (In units) = 4,889 Units

Note

As the Units are in points so there can be some difference in answer as we cannot sell units in Points.

Breakeven Point (In value) = Breakeven Point (In units) * Selling price per unit

= 4,889 Units * $21 per unit

Breakeven Point (In value) = $102,669

2.

Let no. of units to be sold = x

Operating Income = Sales – Variable cost – Fixed Cost

$28,000 = 21x – 12x – 44,000

$72,000 = 9x

X = 8,000 Units

We have to sell 8,000 Units

3.

Income after Tax = $18,300

So it must be 73% (100 – 27%) of Operating income

So,

Operating Income = Income after tax / 73%

= $18,300 / 73%

Operating Income = 25,068.49

4.

Let no. of units to be sold = x

Operating Income = Sales – Variable cost – Fixed Cost – Tax [27% * (Sales – Variable cost – Fixed Cost)]

18,300 = 21x – 12x – 44,000 – [27% * (21x – 12x – 44,000)]

18,300 = 9x – 44,000 – 2.43x + 11,880

18,300 = 6.57x – 32,120

50,420 = 6.57x

X = 7,674.27

We have to sell 7,674 Units to earn Net Income of $18,300.

Note

The Units are in points and we cannot sell units in Points, so due to this there will be small difference in answer.

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