Thomson Electronics, Inc. has estimated the following costs for producing and se

Question

Thomson Electronics, Inc. has estimated the following costs for producing and selling 15,000 units

of its product:

Direct materials (variable cost)                                                $75,000

Direct labour(variable cost)                                                      90,000

Variable overhead(variable cost)                                             45,000

Fixed overhead (xed cost)                                                        30,000

Variable selling and administrative expenses (variable cost)    60,000

Fixed selling and administrative expenses (xed cost)               40,000

Thomson Electronics' income tax rate is 40%.

Instructions

a) Given that the selling price of one unit is $38, calculate how many units Thomson Electronics

would have to sell in order to break even. (2 Points)

b) Assume the selling price is $43 per unit. Calculate how many units Thomson Electronics would

have to sell in order to produce a prot of $25,000 before taxes. (3 Points)

c) Calculate what price Thomson Electronics would have to charge in order to produce a prot

of $30,000 after taxes if 7,500 units were produced and sold. (3 Points)

d) Calculate what price Thomson Electronics would have to charge in order to produce a before-tax

prot equal to 30% of sales if 9,000 units were produced and sold. (4 Points)

Explanation / Answer

a) Given that the selling price of one unit is $38, calculate how many units Thomson Electronics

would have to sell in order to break even. (2 Points)

Variable cost per unit = total variable cost/ units = 270000/15000 = 18

Contribution per unit = 38 -18 = 20

Break Even Point (Units) = Fixed cost / contribution per unit = 70000/20 = 3500 Units

b) Assume the selling price is $43 per unit. Calculate how many units Thomson Electronics would

have to sell in order to produce a prot of $25,000 before taxes. (3 Points)

Contribution per unit = 43 -18 = 25

No of unit to be sold to generate a profit of $25,000 before taxes = (70000+25000)/25 = 3800 Unit

c) Calculate what price Thomson Electronics would have to charge in order to produce a prot

of $30,000 after taxes if 7,500 units were produced and sold. (3 Points)

After tax profit = 30000

Before tax profit = 30000/0.60 = $ 50000

Fixed cost = 70000

Contribution = 120000

Contribution Per unit = 120000/7500 = $ 16

Variable cost = $ 18

Selling price should be = 16+ 18 = $ 34 per unit

d) Calculate what price Thomson Electronics would have to charge in order to produce a before-tax

prot equal to 30% of sales if 9,000 units were produced and sold. (4 Points)

Let the selling price be x

Sales = X*9000

Before tax profit = 30%*x*9000 = 2700X

Fixed Cost = 70000

Variable Cost = 9000*18 = 162000

Sales = 2700X + 70000+ 162000

2700X + 70000+ 162000 = X*9000

6300X = 232000

X = 232000/6300

X = 36.825

Selling Price should be $ 36.83

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