QUESTION 21 saved Points out of 20.00 Flag question Net Income Planning Midvale

Question

QUESTION 21 saved Points out of 20.00 Flag question Net Income Planning Midvale Corporation sells a single product for $100 per unit, of which $40 is contribution margin. Fixed costs total $120,000 and net income before income tax is $48,000 Determine the following a. The present sales volume in dollars. $ 0 b. The break-even point in units. 0 units c. The sales volume in units necessary to attain a net income before income tax of $60,000. 0 units d. The sales volume in units necessary to attain a net income before income tax equal to 10% of sales revenue. 0 units e. The sales volume in units necessary to attain an after-tax net income of $54,000 if the tax rate is 40%. 11 units QUESTION 22 Answer saved Points out of 20.00 Flag question Budget Preparation Reeves Company is preparing its master budget for July. Use the given estimates to determine the amounts necessary for each of the

Explanation / Answer

(a).

The present sales volume in dollars = $420000

Explanation;

Following formula will be used;

(Fixed costs + Income before income tax) * Sale price per unit / Contribution margin

Now let’s put the values in the formula;

($120000 + $48000) * $100 / $40 = $420000

(b).

Break-even point in units = 3000 units

Explanation;

Following formula will be used;

Break-even point in units =

Fixed costs / Contribution margin

Now let’s put the values in the formula;

$120000 / $40 = 3000 units

(c).

Sales in units to attain a net income before tax of $60000 = 4500 units

Explanation;

Following formula will be used;

(Fixed costs + Income before income tax) / Contribution margin

Now let’s put the values in the formula;

($120000 + $60000) / $40 = 4500 units

(d).

Sales in units to attain a net income before tax of 10% of sales revenue = 4000 units

Explanation;

Suppose X number of units to be sold to attain net income before tax of 10% of sales revenue;

Sales revenue = 100 X

Profit = 10 X

Contribution margin = 40 X

Fixed costs = $120000

Now let’s put values in the equation;

40 X – $120000 = 10 X

40 X – 10 X = $120000

30 X = $120000

X = $120000 / 30 = 4000 units

(e).

Sales in units to attain a net income after tax of $54000 = 5250 units

Explanation;

Net income after tax = $54000

Tax rate = 40%

Thus net income before tax ($54000 / 0.60) = $90000

Following formula will be used;

(Fixed costs + Income before income tax) / Contribution margin

Now let’s put the values in the formula;

($120000 + $90000) / $40 = 5250 units

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