Homework Answers
| a.the fixed costs for bubblegum inc | 560,000 |
| b.whether bubblegum inc should implement bonnibel's plan: | yes |
| c. explanation | The net income after tax increases to $525,000. |
working:
a. before tax income = 480,000 / (1-0.25 tax rate)=>640,000.
contribution margin = (0.90 sale price - 0.10 variable cost) * 1,500,000
=>1,200,000.
fixed costs = 1,200,000 - 640,000 =>560,000.
b.
if plan is accepted total sales =1,500,000+600,000
=>2,100,000
new contribution per unit = ($0.80-0.20)=>$0.60.
total contribution =12,60,000.
net income before tax = 1,260,000-560,000=>700,000
after tax income = 700,000*(1-0.25)
=>525,000.
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