Question

Question 1 Brooke Motors is a small car dealership. On average, it sells a car for $27,000, which it purchases from the manufacturer for $23,000. Each month, Brooke Motors pays $48,200 in rent and utilities and $68,000 for salespeople's salaries. In addition to their salaries, salespeople are paid a commission of $600 for each car they sell. Brooke Motors also spends $13,000 each month for local advertisements. Its tax rate is 40%. Required: 1. How many cars must Brooke Motors sell each month to break even? 2. Brooke Motors has a target monthly net income of $51,000. What is its target monthly operating income? How many cars must be sold each month to reach the target monthly net income of $51,000?

Answer 1

Ans 1 Break Even Sales: It is the volume of sales at which the total cost is equal total revenue Break Even Sales in Unit= Fixed Expense/Contribution Margin per unit Amount $27,000 Particulars Sales Less: Variable Cost Purchase cost Commission on sales Contribution Margin $23,000 $600 $3,400 Fixed Expense Particulars Rent Utilities Advertisement Total Amount $48,200 $68,000 $13,000 $1,29,200 38 Break Even Sales in Unit ($129200/$3400] Ans 2 Desired Net Income Add: Income tax ($51000/60% x 40%] Target Monthly Operating Income Add: Fixed Expense Total $51,000 $34,000 $85,000 $1,29,200 $2,14,200 63 Break Even Sales in Unit ($129200/$3400] Traget monthly operating income is Car to be sold $85,000 63