Question

Oregon Company sells only two products, Product A and Product B. Total Selling price Variable cost per unit Total fixed costs Product A Product B $40 $50 $24 $40 $840,000 Oregon sells two units of Product A for each unit it sells of Product B. Oregon has a tax rate of 30%. Required: a. What is the breakeven point in Revenue, given the above sales mix and tax rate. b. How many units in total would need to be sold if they desired an after-tax net income of $70,000?

part a and b please

Answer 1

a) Calculation of break even point;

Oregon sells 2 units of product A for 1 unit of product B, total 3 units are sold.

Contribution margin = selling price per unit - Variable cost per unit

Contribution margin for 3 units = ($40 - $24) × 2 + ($50 - $40) = $42.

Break even point in units = Fixed cost/ contribution margin

= $840000×3/$42

= 60000 units

Product A = 60,000×2/3 = 40,000 units

Product B = 60000×1/3 = 20,000 units

Break even point in revenue

= 40000×$40 + 20000×$50

= $1,600,000 + $1,000,000

= $2,600,000.

b) calculation of units need to be sold to earn a desired after tax net income of $70,000;

Profit after tax = $70,000

Tax rate = 30%

Profit before tax = $70000/70%

= $100,000

Sales units

= Fixed cost + desired profit/contribution margin

= ($840,000 + $70,000) × 3/$42

= 65,000 units

Product A = 65,000×2/3 = 43,333 units

Product B = 65,000×1/3 = 21,667 units