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    CVP Analysis & Income Taxes

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    Diego Motors is a small car dealership. On average it sells a car for $25,000 which it purchases from the manufacturer for $22,000. Each month, Diego Motors pays $50,000 in rent and utilities and $60,000 for salespeople's salaries. In addition to their salaries, salespeople are pain a commission of $500 for each car they sell. Diego Motors also spends $10,000 each month for local advertisements. Its tax rate is 40%.

    1) How many cars must Diego Motors sell each month to break even?
    2) Diego Motors has a target monthly net income of $54,000. What is its target monthly operating income? How many cars must be sold each month to reach the target monthly net income of $54,000.

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    Solution Summary

    Excel file contains calculations of break-even point and sales required to earn targeted profit (after tax income).