Question

a. What is Madden's breakeven point in units sold for the next?
b. If Madden wants $4.5 million in pre-tax profit, what is the required level of sales in dollars?

ENGG433/956-Spring-2019-Week-7 Submission Question 4.26 4-26 Breakeven; targeted profit; ROI targeted profit LO2, 3 Madden Company projected its income before taxes for next year as shown here. Madden is subject to a 40 per cent income tax rate. Sales (160,000 units) $8,000,000 Cost of goods sold Variable costs $2,000,000 Fixed-costs $3,000,000 Pre-tax profit $3,000,000 Required (a) What is Madden's breakeven point in units sold for the next year? (b) If Madden wants $4.5 million in pre-tax profit, what is the required level of sales in dollars?

Answer 1

$ $ $ sales variable costs contribution margin units contribution margin per unit contribution margin ratio 8,000,000 2,000,000 6,000,000 160,000 37.50 | 75% $ ($6,000,000 / $8,000,000) breakeven point in units = total fixed costs / contribution margin per unit breakeven point in units = $3,000,000 / $37.50 breakeven point in units = 80,000 units (b) required contribution margin = total fixed costs + required pre tax income) / contribution margin ratio required contribution margin = ($3,000,000+ $4,500,000) / 75% required contribution margin = $ 10,000,000