(BEP, CVP before and after tax) Equalizer Corporation makes and sells jar lid op
ID: 2607472 • Letter: #
Question
(BEP, CVP before and after tax) Equalizer Corporation makes and sells jar lid openers information for one unit is as follows: 2. . Cost Direct material Direct labor Variable factory overhead Variable selling expenses $1.00 .50 25 05 $1.80 Total variable costs Total Fixed cost $194.400 Each lid opener sells for $4.50. Current annual production and sales volume is 150,000 lid openers. A pre-determined fixed factory overhead rate can be computed based on this activity level. Required: Compute the unit contribution margin and contribution margin ratio for Equalizer Corporation's product. (5 pts) a. b. Compute the breakeven point in units for Equalizer Corporation, using contribution c. Compute the breakeven point in sales dollars for Equalizer Corporation, using d. If Equalizer Corporation wants to earm $43,200 of before-tax profits, how many openers margin. (10 pts) contribution margin ratio. (10 pts) will it have to sell? (10 pts) If Equalizer Corporation wants to earn $40,500 after taxes and is subject to a 25 percent tax rate, how many units will it have to sell? (10 pts) If Equalizer Corporation can sell an additional 12,000 openers overseas for $3.50. Variable costs will increase by $0.20 for shipping expenses, and fixed costs will increase by $25,000 because of the purchase of a new machine. This is a one-time only sale and will not affect domestic sales this year on in the future. Should Equalizer Corporation sell additional units? (15 pts) e. f.Explanation / Answer
Answer
A
Sale Price per unit
4.5
(Less) Variable cost
B
Direct Material
1
C
Direct Labor
0.5
D
Factory Overhead
0.25
E
Selling Expenses
0.05
F=B+C+D+E
Total variable cost
1.8
G=A-F
Contribution Margin per unit
$ 2.7
H=G/A
Contribution margin ratio
60.00%
A
Fixed Costs
194400
B
Contribution Margin per unit
2.7
C=A/B
Break Even point in Units
72000
A
Fixed Costs
194400
B
Contribution margin ratio
60%
C=A/B
Break Even point in Sales dollars
324000
A
Target profit
43200
B
Fixed Cost
194400
C=A+B
Contribution required to be earned
237600
D
Contribution per unit
2.7
E=C/D
Units required to be sold to earn target profit
88000
A
After tax target profit
40500
B
Tax Rate
25%
C=A/(100-B)
Before Tax target price [40500 / 75%]
54000
D
Fixed Cost
194400
E=C+D
Contribution required to be earned
248400
F
Contribution per unit
2.7
G=E/F
Units required to be sold to earn target profit
92000
A
Sales price [given]
3.5
B
Total variable cost [given 1.8 + 0.2]
2
C=A-B
Contribution per unit
7
D=C x 12000 units
Total contribution margin [12000 * 7]
84000
E
Fixed Cost increase
25000
F=D-E
Net additional income from overseas operations
59000
Since, Contribution is exceeding the expected Fixed Cost, The company should sell additional units in Overseas.
A
Sale Price per unit
4.5
(Less) Variable cost
B
Direct Material
1
C
Direct Labor
0.5
D
Factory Overhead
0.25
E
Selling Expenses
0.05
F=B+C+D+E
Total variable cost
1.8
G=A-F
Contribution Margin per unit
$ 2.7
H=G/A
Contribution margin ratio
60.00%
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