The European Division of Worldwide Reference Corporation produces a pocket dictionary containing popular phrases in six European languages. Annual budget data for the coming year follow. Projected sales are 100,000 books.
Sales |
|
| $ 1,000,000 |
Costs: | Fixed | Variable |
|
Direct material | $ –0 – | $300.00 |
|
Direct labor | – 0 – | 200,000 |
|
Manufacturing overhead | 100,000 | 150,000 |
|
Selling and administrative | 110,000 | 50,000 |
|
Total costs | $210,000 | $ 700,000 | 910,000 |
Budgeted operating income |
|
| $ 90,000 |
Required:
1. Calculate the break-even point in units and in sales dollars.
2. If the European Division is subject to an income-tax rate of 40 percent, compute the number of units the company would have to sell to earn an after-tax profit of $ 90,000.
3. If fixed costs increased $ 31,500 with no other cost or revenue factor changing. compute the firm’s break-even sales in units.
4.Prepare a profit-volume graph for the European Division.
5. Due to an unstable political situation in the country in which the European Division is located. management believes the country may split into two independent nations. If this happens, the tax rate could rise to 50 percent. Assuming all other data as in the original problem. how many pocket dictionaries must be sold to earn $ 90,000 after taxes?
6. Buildaspreadsheet :Construct an Excel spreadsheet to solve requirements (1 ), (2), (3 ), and (5) above. Show how the solution will change if the following information changes: sales amounted to $1, 100,000 and fixed manufacturing overhead was $ 110,000.
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