Time-Adjusted Cost-Volume-Profit Analysis with Income Taxes Honeydukes Treat Sho
ID: 2591182 • Letter: T
Question
Time-Adjusted Cost-Volume-Profit Analysis with Income Taxes
Honeydukes Treat Shop is considering the desirability of producing a new chocolate candy called Pleasure Bombs. Before purchasing the new equipment required to manufacture Pleasure Bombs, Neville Long, the shop's proprietor performed the following analysis:
Annual break-even sales volume = $67,500 / $0.45 = 150,000 units
Because the expected annual sales volume is 160,000 units, Long decided to undertake the production of Pleasure Bombs. This required an immediate investment of $87,000 in equipment that has a life of four years and no salvage value. After four years, the production of Pleasure Bombs will be discontinued.
With a 40 percent tax rate and a 8 percent time value of money, determine the annual unit sales required to break even on a time-adjusted basis. Assume straight-line depreciation is used to determine tax payments.
Round UP to the nearest unit.
Answer
units
Unit selling price $2.18 Variable manufacturing and selling costs 1.73 Unit contribution margin $0.45 Annual fixed costs Depreciation (straight-line for 4 years) $21,750 Other (all cash) 45,000 Total $67,500Explanation / Answer
Unit selling price -$ 2.18 Variable manufacturing and selling costs 1.73 Unit contribution margin 0.45 Annual fixed costs Depreciation (SL for 4 years) 21750 Other (all cash) 45000 Total 67500 Annual break even sales volume 150000 Expected annual sales volume 160000 Investment 87000 Year 1 Year 2 Year 3 Year 4 Sales 348800 348800 348800 348800 Variable costs 276800 276800 276800 276800 Contribution 72000 72000 72000 72000 Fixed costs 81239 81239 81239 81239 Other (all cash) 45000 45000 45000 45000 Interest on investments 6960 6960 6960 6960 Depreciation 5438 5438 5438 5438 Taxes 23841 23841 23841 23841 Net profit/loss -9239 -9239 -9239 -9239 Contribution Margin 0.45 0.45 0.45 0.45 Annual break even sales required 180530 180530 180530 180530
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.