Spruce Company is considering the production and sale of a new product with the

Question

Spruce Company is considering the production and sale of a new product with the following sales and cost data: unit sales price, $350; unit variable costs, $180; total fixed costs, $399,500; and projected sales, $910,000. Round your answers to the nearest whole unit or dollar and be sure to label each calculation and show all calculations. Required: (c) Calculate number of units that would need to be sold to generate an after-tax profit of $420,000 assuming a 30% tax rate. (d) Calculate dollar sales that would be needed to generate the same profit as above.

Explanation / Answer

Contribution margin = 350 - 180 = $170 Contribution margin ratio = 170/350 x 100% = 48.57% After tax profit = $420000 Before tax profit must be 420000/0.7 = $600000 Number of units required = (600000 + 399500)/170 = 5879 units Dollar sales that would be needed = (600000 + 399500)/0.4857 = $2057794 Hope this helps!

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