Kiltop Company produces a toy dart gun. The projected income statement for the c

Question

Kiltop Company produces a toy dart gun. The projected income statement for the coming year follows:

Sales                                                                      $ 480,000
Less: Variable costs   ( 249,600)
Contribution margin $ 230,400
Less: Fixed costs                                              ( 180,000)
Operating income   $   50,400

a. Compute the contribution margin ratio for the toy gun.
b. How much revenue must Kiltop earn in order to breakeven?
c. What volume of sales must be earned if Kiltop wants to earn an after-tax income equal to 8% of sales? Assume that the tax rate is 34%.

Explanation / Answer

Hi,

Please find the detailed answer as follows;

Part A:

Contribution Margin Ratio = Contribtution/Sales*100 = 230400/480000*100 = 48%

Part B:

Break Even Revenue = Fixed Cost/Contribution Margin Ratio = 180000/48% = $375000

Part C:

Let Sales be X

Desired Sales = (Fixed Cost + Desired Profit)Contribution Ratio

X = (375000 + 8%*(1-.34)*X)/48%

.48X = 375000 + .0528X

X = 877809

Thanks.

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