Thompson company produces scientific and business calculator, Thompson expects t
ID: 2505114 • Letter: T
Question
Thompson company produces scientific and business calculator, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income statement for the two products is given below:
Scientific Business Total
Sale $5,000,000 $2,000,000 $7,000,000
Less: Variable cost (2,400,000) (900,000) (3,300,000)
Contribution Margin $2,600,000 $1,100,000 $3,700,000
Less: Direct fixed costs (1,200,000) (960,000) (2,160,000)
segment margin $1,400,000 $140,000 $1,540,000
less: common fixed costs (800,000)
operating income $740,000
Required
a. compute the number of scientific calculators and the number of business calculators that must be sold to breakeven.
b.compute the number of scientific calculators and the number of business calculators that must be sold to achieve a $444,000 after tax income. Assume a 40% tax rate.
Explanation / Answer
Thompson company produces scientific and business calculator, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income statement for the two products is given below:
Scientific Business Total
Sale $5,000,000 $2,000,000 $7,000,000
Less: Variable cost (2,400,000) (900,000) (3,300,000)
Contribution Margin $2,600,000 $1,100,000 $3,700,000
Less: Direct fixed costs (1,200,000) (960,000) (2,160,000)
segment margin $1,400,000 $140,000 $1,540,000
less: common fixed costs (800,000)
operating income $740,000
Required
a. compute the number of scientific calculators and the number of business calculators that must be sold to breakeven.
Weighted Avg Contribution Margin Ratio = 37/70
Total Fixed Cost = 2160000 + 800000 = 2960000
Total Sale Required to break even = 2960000/(37/70) = $ 5,600,000
Sale for Scientific calculator for break even = 5600000*5/7 = 4,000,000
Sale for Business calculator for break even = 5600000*2/7 = 1,600,000
Sale Price Per unit:
Scientific Calculator = 5000000/200000 = 25
Business Calculator = 2000000/100000 = $ 20
Number of scientific calculators that must be sold to breakeven = 4000000/25 = 160,000
Number of Business calculators that must be sold to breakeven = 1600000/20= 80,000
b.compute the number of scientific calculators and the number of business calculators that must be sold to achieve a $444,000 after tax income. Assume a 40% tax rate.
After Tax Income Required = 444,000
Before Tax Income Required = 444000/(1-0.40) = 740,000
Total Fixed Cost = 2160000 + 800000 = 2960000
Total Contribution Required to achive target income = 2960000+740000 = 3,700,000
Weighted Avg Contribution Margin Ratio = 37/70
Total Sale Required to Target Income = 3700000/(37/70) = $ 7,000,000
Sale for Scientific calculator for Target Income = 7000000*5/7 = 5,000,000
Sale for Business calculator for Target Income = 7000000*2/7 = 2,000,000
Sale Price Per unit:
Scientific Calculator = 5000000/200000 = 25
Business Calculator = 2000000/100000 = $ 20
Number of scientific calculators to be sold to achieveTarget Income = 5000000/25 = 200,000
Number of Business calculators to be sold to achieveTarget Income = 2000000/20= 100,000
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