1. Cavaliers Inc sell product sells a product for $10 per unit. The fixed cost a
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Question
1. Cavaliers Inc sell product sells a product for $10 per unit. The fixed cost are $240,000 and the unit variable cost are 60% of the selling price. What sales would be necessary in order for cavaliers INC. to realize a profit for 10% of sales.
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2. The cheesapeake Bay Company has fixed cost of $400,000 and variable cost are 75% of the selling price. To realize profits of $100,000 from sales of $500,000 units the selling price per unit must be ?
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3. At breakeven point of 200 units variable cost total $400 and fixed cost total $600. The 201 st unit sold will contribute __________ to profits. Show solution
a. $1.00
b. $2.00
c. $3.00
d. $5.00
4. Assume of following cost information for mighty chocolate company, Inc.
selling price $120 PER UNIT
Variable Cost $80 per unit
Total fixed cost $80,000
Income tax rate 40%
What minimum volume of sales dollars is required to earn an after-tax net income of 30,000 show solution
What is the number of units that must be sold to earn an after tax net income of $42,000
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Explanation / Answer
1.variable cost are 60% of sales and required profit is 10% of sales , thus the fixed cost should comprise of rest 30% in sales.
fixed cost = $240,000
required sales to earn 10% profit=$240,000/30%
i.e $ 800,000.
b. if variable cost in sales is 75% then contribution should be 25%.
contribution=fixed cost+ profit
desired contribution=400000+100000=500000
so the desired sales should be 500000/25%=$2000000
units of production= 500000
sales price per unit=2000000/500000= $4 per unit
c.At break even our contribution equals fixed cost thus whatever contribution we get after breakeven point reflects our profit.
in this case contribution per unit= 600/200=$3.
Thus from 201st unit profit will be $3 per unit.
d.selling price=120
variable cost=80
contribution =40
p/v ratio=contribution/sales=40/120=33.33%
particulars formula case-1 case-2 desired aftertax return 30000 42000 tax@40% of ebit after tax profit/(1-tax rate) 20000 28000 before tax profit profit after tax+ tax 50000 70000 fixed cost 80000 80000 desired contribution fixed cost+profit 130000 150000 desired sales contribution/pv ratio 390000 450000 sales price per unit 120 120 no. of units to be sold 3250 3750
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