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The East Company is operating at full capacity and sold 100,000 units at a price of $80 per unit during 2020. Its gross margiExtended Analysis: Management is considering a plant expansion program that will permit the company to manufacture and sell m

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per Unit Current Data in Contribution Format East Company Units 100000 Particulars Total Sales 80 8000000 Less: Variable Cost

After Expansion East Company 114375 per Unit Total 80 9150000 Units Particulars Sales Less: Variable Costs Contribution Margi

CM Ratio =CM per Unit / Selling Price 40%

4) BEP Units =Fixed Cost / CM per Unit = 2500000/48 78125 Units BEP Sales =Fixed Cost / CM ratio |=2500000 / 40% 6250000

5) Desired Sales =(Desired Profit +Fixed Cost) / CM per Unit I=(1000000+2500000)/32 109375 Units

6) After Tax Net Income Tax Rate Before Tax Net Income 1000000 20% =1000000*100/80 1250000 =(Desired Profit +Fixed Cost) / CM

7) Net Income (Before Tax) - See in After Expansion Calculations Less: Tax @ 20% Net Income (After Tax) 1160000 232000 9280

Conclusion: No it is not possible to achieve the targeted net income

8) East Company 100000 Units per Unit Total 80 8000000 48 4800000 Particulars Sales Less: Variable Costs Contribution Margin

Hope this helps! In case of any clarifications, kindly use the comment box below

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