Sandwich Ltd prepares meals for sale 24 hours a day. Fixed cost for the restaura
ID: 2583121 • Letter: S
Question
Sandwich Ltd prepares meals for sale 24 hours a day. Fixed cost for the restaurant is $450000 per year. On average the sales check per customer is $8.00. The average cost of food and other variable costs is $3.20 per customer. The income tax rate is 30%. Target net income is $105000.
a) What revenues are needed to earn the target net income?--- (7 marks)
b) How many customers are needed to breakeven? To earn net income of $105000? (10 marks)
c) What is the net income if the number of customers is 150000? (8 marks)
Explanation / Answer
Target income volume = [Fixed costs + (Target after-tax income/(1-tax rate)]/(selling price - variable cost)
If all the variables are known target income volume can be determined by above mentioned formula
If,
Fixed cost = $450000
Target after tax income = $105000
Selling price = $8 per unit
Variable cost = $3.2 per unit
Tax rate = 0.3
Target income will be,
= [450000 + {105000/ (1 - 0.3)}]/ (8 - 3.2)
= [450000 + {105000/ 0.7}]/ 4.8
= [450000 + 150000]/4.8
= 600000/ 4.8
= 125000
So to achieve target profit of $105000 the required units to sell is 125000 units
Target Revenue = 125000 * 8 = $1000000
Target income volume = [Fixed costs + (Target after-tax income/(1-tax rate)]/(selling price - variable cost)
If all the variables are known target income volume can be determined by above mentioned formula
If,
Fixed cost = $450000
Target after tax income = $0
Selling price = $8 per unit
Variable cost = $3.2 per unit
Tax rate = 0.3
Target income will be,
= [450000 + {0/ (1 - 0.3)}]/ (8 - 3.2)
= [450000 + {0/ 0.7}]/ 4.8
= [450000 + 0]/4.8
= 450000/ 4.8
= 93750
To reach breakeven required sale unit is 93750
Target income volume = [Fixed costs + (Target after-tax income/(1-tax rate)]/(selling price - variable cost)
150000 = [450000 + (X/(1-0.3)]/(8-3.2)
150000 = [450000 + (X/(.7)]/4.8
720000 = 450000 + X/.7
720000 = (450000*.7 + X)/.7
504000 = 315000 +X
X = 189000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.