Cost volume profit questions - break even
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FIRST CORPORATION IS CONTEMPLATING INTRODUCING A NEW LINE OF WIDGETS. THE WIDGETS WILL SELL FOR $28 EACH. THE VARIABLE COSTS ASSOCIATED WITH EACH WIDGET ARE $22. IF THE WIDGETS ARE TO BE INTRODUCED NATIONWIDE, THE COMPANY WILL HAVE TO OBTAIN ACCEPTABLE PROFIT ON A TEST MARKET BASIS. THE FIXED COSTS ASSOCIATED WITH THE TEST MARKET ARE $300,000 PER YEAR. THE COMPANY HAS A TAX RATE OF 40%.
REQUIRED: (SHOW WORK ON WORK SHEET PROVIDED ON PAGE 6.)
1. BREAKEVEN POINT IN UNITS. ______________________________
2. UNITS OF SALES REQUIRED TO EARN A PRE-TAX PROFIT OF $30,000.
______________________________
3. UNITS OF SALES REQUIRED TO EARN A POST-TAX PROFIT OF $30,000.
______________________________
4. POST-TAX BREAKEVEN POINT IN UNITS. ___________________________
ASSUME THE COMPANY IS OPERATING ABOVE BREAKEVEN WHEN A SPECIAL ORDER IS RECEIVED FROM A FOREIGHN MARKET FOR THE PURCHASE OF AN ADDITIONAL 10,000 WIDGETS. THERE IS ADEQUATE CAPACITY TO MANUFACTUR AND SALE THESE WIDGETS.
5. PROFIT ON THIS ORDER ONLY IF THE SALES PRICE IS $24.00.
______________________________
6. SALES PRICE REQUIRED TO EARN A PRE-TAX PROFIT OF $20,000 ON
THIS ORDER ONLY. _________________________
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I put the work in Excel so you can see the computations. Formulas are shown for you.
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