Sony Company sells used TVS online. The projected after-tax net income for the c

Question

Sony Company sells used TVS online. The projected after-tax net income for the current year is $500,000 based on a sales volume of 100,000 TVs. Sony has been selling the TVs at $350 each. The variable costs consist of the $115 unit purchase price of the TVs and a handling cost of $4 per TV. Sony’s annual fixed costs are $1,000,000 and Sony is subject to a 35 percent income tax rate.

a. What is the breakeven point for Sony? (Before tax)

b. What is the after-tax income if sales decreased by 15%?

c. How much different in net income is this compared to the 100,000?

Explanation / Answer

a)Contribution per unit =price -variable cost

350 -115 -4

= 231

BEP =fixed cost /contribution per unit

= 1000000/231

= 4329.004 [approx to 4330]

b)Number of unit sold (revised) = 100000(1-.15)= 85000

contribution =85000*231 = 19635000

Income before tax : 19635000-1000000 = 18635000

After tax income : 18635000[1-.35]= 12112750

c)Income before at 100000 units :[231*100000]- 1000000=22100000

after tax income = 22100000[1-.35]= 14365000

Difference in net income : 12112750-14365000= - 2252250 decrease

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.