Cost-Volume Profit Analysis
Hailstorm Company sells a single product for $22 per unit. Variable
costs are $14 per unit and fixed costs are $80,000 at an operating
level of 7,000 to 12,000 units.
a. What is Hailstorm Company's break-even point in units?
____ units
b. How many units must be sold to earn $12,000 before income tax?
____ units
c. How many units must be sold to earn $13,000 after income tax, assuming a 35% tax rate?
_____ units
a. Break Even point in units = Fixed Cost / Contribution Margin per unit
= $ 80,000 / ( Selling price per unit - variable cost per unit)
= $ 80,000 / ( $ 22 - $14)
= 10,000 units
Hence the correct answer is 10,000 units.
b. Required Profit = $ 12,000
Fixed cost = 80,000
Required contribution margin = required profit + fixed cost
= $ 12,000 + $ 80,000
= $ 92,000
contribution margin per unit = Selling price per unit - variable cost per unit
= $ 22 - $ 14
= $ 8
Hence, units to be sold to earn $12,000 before income tax = Required contribution margin/contribution margin per unit
= $ 92,000 / $ 8
= 11,500 units
Hence the correct answer is 11,500 units
c.
Required profit after tax = 13,000
Required Profit before tax =Required profit after tax/ (1- tax rate)
= $ 13,000 / (1-35%)
= $ 20,000
Fixed cost = 80,000
Required contribution margin = required profit + fixed cost
= $ 20,000 + $ 80,000
= $ 100,000
contribution margin per unit = Selling price per unit - variable cost per unit
= $ 22 - $ 14
= $ 8
Hence, units to be sold to earn $20,000 before income tax = Required contribution margin/contribution margin per unit
= $ 100,000 / $ 8
= 12,500 units
Hence the correct answer is 12,500 units
Cost-Volume Profit Analysis Hailstorm Company sells a single product for $22 per unit. Variable costs are...
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