10-31 Bathtub Rings Corporation manufactures shower curtains that sell for $5.00
ID: 2581836 • Letter: 1
Question
10-31 Bathtub Rings Corporation manufactures shower curtains that sell for $5.00 each and cost $3.48 to produce. It also manufactures shower-curtain rings that sell for $1.60 per year. Bathtub Rings sells five shower curtains for every rings that it sells. Required: (1) How many of each product must Bathtub Rings sell to break even? box and cost $1.22 per box to produce. Fixed costs total $30,000 per two boxes of shower-curtain (2) How many of each product must Bathtub Rings sell to earn a pretax income of $49,800 (3) How many of each product must Bathtub Rings sell to earn an after-tax income of $49,800 if the income tax rate is 30%?Explanation / Answer
Shower curtains Shower curtain rings Total Selling price/unit 5 1.6 Cost/unit 3.48 1.22 Contribution/unit 1.52 0.38 Units sold 5 2 Total contribution 7.6 0.76 8.36 Total sale value 25 3.2 28.2 Wt.av. Contribution ratio= 8.36/28.2= 29.65% Total Fixed costs 30000 Weighted av.Break-even $=Fixed costs/Wt.av CM ratio 30000/29.65% 101180 Sale value units Shower curtains =101180*88.65% 89696 17939 Shower curtain rings=101180*11.35%= 11484 7177 101180 Ratio of sale value Total sale value 25 3.2 28.2 88.65% 11.35% 100% ANSWER: 1. 17939 shower curtains & 7177 shower-curtain rings Verification Curtains Rings Sales value (5, 1.6) 89695 11484 Cost (3.48 , 1.22) 62428 8756 Contibution (1.52 ,0.38) 27268 2727 Fixed costs(30000) 29995 (Diff. due to approximation) 2 Weighted av.Break-even $=(Fixed costs+pretax income)/Wt.av CM ratio (30000+49800)/29.65% 269140 Sale value units Shower curtains =269140*88.65% 238593 47719 Shower curtain rings=269140*11.35%= 30547 19092 269140 ANSWER: 2. 47719 shower curtains & 19092 shower-curtain rings Verification Curtains Rings Sales value (5, 1.6) 238593 30547 Cost (3.48 , 1.22) 166060 23292 Contibution (1.52 ,0.38) 72532 7255 79787 Less: Fixed costs 30000 Pre-tax Income 49787 (Diff. due to approximation) 3 After-tax income=49800 So, before tax Income= 49800/(1-30%)= 71143 Weighted av.Break-even $=(Fixed costs+pretax income)/Wt.av CM ratio (30000+71143)/29.65% 341123 Sale value units Shower curtains =341123*88.65% 302406 60481 Shower curtain rings=341123*11.35%= 38717 24198 341123 ANSWER: 3. 60481 shower curtains & 24198 shower-curtain rings Verification Curtains Rings Sales value (5, 1.6) 302406 38717 Cost (3.48 , 1.22) 210474 29522 Contibution (1.52 ,0.38) 91931 9195 101127 Less: Fixed costs 30000 Pre-tax Income 71127 (Diff. due to approximation)
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