Question

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) The sales price of the T-shirts will be $10. Variable cost to manufacture will increase by one-third. Fixed costs will increase by 10%. The income tax rate of 40% will be unchanged. Based on a $10 selling price per unit and if Dorcan Corporation wishes to earn $37,800 in after tax net income for the coming year, the company's sales volume in dollars must be: Multiple Choice $213,750. $257,625. $207,000. $255,000.

Answer 1

Break-even sales	20000
X Unit Contribution margin	5.25	=7.5-2.25
Fixed costs	105000
Coming year:
Variable cost per shirt	3.00	=2.25+(2.25*1/3)
Fixed costs	115500	=105000*1.10
Required before tax income	63000	=37800/(1-40%)
Add: Fixed costs	115500
Required Contribution margin	178500
Divide by Contribution margin per shirt	7	=10-3
Required sales in units	25500
Required sales volume in dollars	255000	=25500*10
Option D $255,000 is correct