Ivanhoe sells T-shirts imprinted with high school names and logos. Last year the
ID: 2335209 • Letter: I
Question
Ivanhoe sells T-shirts imprinted with high school names and logos. Last year the shirts sold for $39.00 each, and variable costs were $26.40 per shirt. At this cost structure, the breakeven point was 20,000 shirts. However, the company actually earned $15,120 in net income.
This year, the company is increasing its price to $42.00 per shirt. Variable costs per shirt will increase by one-third, and fixed expenses will increase by $30,900. The tax rate will remain at 40%.
Ivanhoe
Contribution Income Statement
Total
Per unit
Calculate the contribution margin per unit for this year. (Round Contribution margin per unit to 2 decimal places, e.g. 0.38.)
$
How many T-shirts must the company sell this year to break even? (Use the rounded contribution margin per unit calculated in the previous part to calculate Breakeven units. Round Breakeven units to 0 decimal places, e.g. 25,000.)
T-shirts
How many T-shirts must the company sell this year in order to earn $28,980 in net income? (Use the rounded contribution margin per unit calculated in the previous part to calculate Target Sales units. Round Target Sales units to 0 decimal places, e.g. 25,000.)
Ivanhoe
Contribution Income Statement
Total
Per unit
Fixed ExpensesOperating IncomeIncome TaxNet Income/(Loss)SalesVariable ExpensesContribution Margin
$ $Income TaxContribution MarginVariable ExpensesFixed ExpensesNet Income/(Loss)SalesOperating Income
Fixed ExpensesIncome TaxNet Income/(Loss)Contribution MarginOperating IncomeSalesVariable Expenses
$SalesNet Income/(Loss)Contribution MarginVariable ExpensesFixed ExpensesIncome TaxOperating Income
Operating IncomeVariable ExpensesFixed ExpensesSalesIncome TaxContribution MarginNet Income/(Loss)
Variable ExpensesSalesOperating IncomeNet Income/(Loss)Fixed ExpensesContribution MarginIncome Tax
Variable ExpensesOperating IncomeSalesFixed ExpensesIncome TaxNet Income/(Loss)Contribution Margin
$Calculate the contribution margin per unit for this year. (Round Contribution margin per unit to 2 decimal places, e.g. 0.38.)
$
How many T-shirts must the company sell this year to break even? (Use the rounded contribution margin per unit calculated in the previous part to calculate Breakeven units. Round Breakeven units to 0 decimal places, e.g. 25,000.)
T-shirts
How many T-shirts must the company sell this year in order to earn $28,980 in net income? (Use the rounded contribution margin per unit calculated in the previous part to calculate Target Sales units. Round Target Sales units to 0 decimal places, e.g. 25,000.)
Explanation / Answer
Ivanhoe Contribution Income Statement Sales $42 Less : Variable costs 35.2 (26.40/3) + 26.40 1 Contribution Margin per unit $6.80 16.19% Fixed costs (252000+30900) 282900 2 Break Even point 41603 41600 Sales 1,997,974.06 100% Less : Variable Costs 1,674,492.54 83.81% Contribution 323,472.00 16.19% Less : Fixed Expense 282,900.00 Income before tax 40,572.00 60 Less: Tax @ 40% 11,592.00 40 Net Income 28,980.00 100 Sales - 1997974.06/42 47,570.81 No of units to be sold - 47571 47570 Fixed Costs - Last year Contribution margin 12.6 39-26.40 Breakeven point 20000 Breakeven point = Fixed Costs/Contribution per margin 20000*12.6 = Fixed costs 252000
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