Question

/ID #: From the price and cost assumptions in 5(a) and the additional information listec below, complete the chart and identify what sales volume is required to provide an after-tax profit of $14,300 (Points 10): b) - The company renegotiated their lease with their landlord and decreased fixed costs by $15,000. Variable costs increased by $1.00 as a result of a price increase from a major supplier - As a result of the supplier cost increase, the company raised their unit selling price by $5.00

Answer 1

Answers

• All working forms part of the answer
• Workings for calculating updated value:

A	After Tax Profits	$                                   14,300.00
B	Tax Rate	35%
C = A/(100% - B)	Before tax profits	$                                   22,000.00
A	Current Fixed cost	$                                   83,000.00
B	Decrease in Fixed cost	$                                   15,000.00
C = A - B	New Fixed Cost	$                                   68,000.00
A	Current Variable cost per unit	$                                           14.00
B	Increase in Variable cost	$                                              1.00
C =A+B	New Variable cost per unit	$                                           15.00
A	Current Selling Price	$                                           30.00
B	Increase in Selling price	$                                              5.00
C = A+B	New Selling price	$                                           35.00

• Calculation of units required to earn $ 14,300 of after tax profits

A	New Contribution margin per unit	$                                           20.00
B	New Fixed Cost	$                                   68,000.00
C	Before tax Profit required	$                                   22,000.00
D = B+C	Total Contribution margin required	$                                   90,000.00
E = D/A	Units of volume required as sale for earning after tax profits of $ 14,300	4,500

• Verification that 4,500 units will earn $ 14,300 after tax profits

	Units	per unit	Amount
Sales	4500	$                   35.00	$      157,500.00
Total variable cost	4500	$                   15.00	$        67,500.00
Contribution margin	4500	$                   20.00	$        90,000.00
Total Fixed cost			$        68,000.00
Net Income before Income Taxes			$        22,000.00
Income Tax expenses			$          7,700.00
Net Income			$        14,300.00