Thompson Company produces scientific and business calculators. Fey the coming ye
ID: 2448112 • Letter: T
Question
Thompson Company produces scientific and business calculators. Fey the coming year. Thompson expects to sell 200.000 scientific calculators and 100,000 business calculators. A segmented income statement for the two Products is given below: Required a. Compute the number of scientific calculators and the number of business calculators that must be sold to breakeven. b. Compute the number of scientific calculators and the number of business calculators that must be sold to achieve a $444,000 after tax income. Assume a 40% tax rate.Explanation / Answer
A. Break even units = Fixed cost / contribution per unit or Fixed cost/ contribution value
Weighted Avg Contribution Margin Ratio = 37/70
Total Fixed Cost = 2160000 + 800000 = 2960000
Total Sale Required to break even = 2960000/(37/70) = $ 5,600,000
Sale for Scientific calculator for break even = 5600000*5/7 = 4,000,000
Sale for Business calculator for break even = 5600000*2/7 = 1,600,000
Sale Price Per unit:
Scientific Calculator = 5000000/200000 = 25
Business Calculator = 2000000/100000 = $ 20
Number of scientific calculators that must be sold to breakeven = 4000000/25 = 160,000
Number of Business calculators that must be sold to breakeven = 1600000/20= 80,000
B.
After Tax Income Required = 444,000
Before Tax Income Required = 444000/(1-0.40) = 740,000
Total Fixed Cost = 2160000 + 800000 = 2960000
Total Contribution Required to achive target income = 2960000+740000 = 3,700,000
Weighted Avg Contribution Margin Ratio = 37/70
Total Sale Required to Target Income = 3700000/(37/70) = $ 7,000,000
Sale for Scientific calculator for Target Income = 7000000*5/7 = 5,000,000
Sale for Business calculator for Target Income = 7000000*2/7 = 2,000,000
Sale Price Per unit:
Scientific Calculator = 5000000/200000 = 25
Business Calculator = 2000000/100000 = $ 20
Number of scientific calculators to be sold to achieveTarget Income = 5000000/25 = 200,000
Number of Business calculators to be sold to achieveTarget Income = 2000000/20= 100,000
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