Average swimsuit selling price $70 Variable swimsuit expenses Direct material 28
ID: 2433350 • Letter: A
Question
Average swimsuit selling price
$70
Variable swimsuit expenses
Direct material
28
Direct labor
12
Variable overhead
8
Annual fixed costs
Production
$10,000
Selling & Administrative
24,000
The company’s tax rate is 40 percent. Vicky Walters,company president, asked you to help her answer the followingquestions.
a. What is the break-even point in number of swimsuits and indollars?
b. How much revenue must be generated to produce $40,000 ofpre-tax earnings? How many swimsuits would this level of revenuerepresent?
c. How much revenue must be generated to produce $40,000 ofafter-tax earnings? How many swimsuits would this represent?
d. What amount of revenue would be necessary to yield anafter-tax profit equal to 20 percent of revenue?
e. Aqua Gear is considering purchasing a much faster sewingmachine that will save $6 per swimsuit in cost but will raiseannual fixed production cost by $40,000. If the equipment ispurchased, the company expects to make and sell an additional 5,000swimsuits. Should the company make this investment?
f. A marketing consultant told Aqua Inc managers that theycould increase the number of swimsuits sold by 30 percent if theselling price was reduced by 10 percent and the company spent$10,000 on advertising. The company has been selling 3,000swimsuits. Should the company make the changes advised by theconsultant?
Average swimsuit selling price
$70
Variable swimsuit expenses
Direct material
28
Direct labor
12
Variable overhead
8
Annual fixed costs
Production
$10,000
Selling & Administrative
24,000
Explanation / Answer
x.0mtribution margin statement
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