Multiple Product Planning with Taxes In the year 2008, Wiggins Processing Compan
ID: 2586908 • Letter: M
Question
Multiple Product Planning with Taxes
In the year 2008, Wiggins Processing Company had the following contribution income statement:
HINT: Round contribution margin ratio to two decimal places for your calculations below.
(a) Determine the annual break-even point in sales dollars.
$Answer
(b) Determine the annual margin of safety in sales dollars.
$Answer
(c) What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $76,000?
Answer
(d) With the current cost structure, including fixed costs of $266,000, what dollar sales volume is required to provide an after-tax net income of $250,000?
Do not round until your final answer. Round your answer to the nearest dollar.
$Answer
(e) Prepare an abbreviated contribution income statement to verify that the solution to part (d) will provide the desired after-tax income.
Round your answers to the nearest dollar. Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.
WIGGINS PROCESSING COMPANYContribution Income Statement
For the Year 2008 Sales $1,000,000 Variable costs Cost of goods sold $420,000 Selling and administrative 200,000 (620,000) Contribution margin 380,000 Fixed Costs Factory overhead 186,000 Selling and administrative 80,000 (266,000) Before-tax profit 114,000 Income taxes (37%) (42,180) After-tax profit $71,820
Explanation / Answer
sales
1000000
less variable cost
620000
contribution
380000
Contribution margin ratio
contribution/sales
0.38
Fixed cost
266000
1-
break even sales in dollar
fixed cost/contribution margin ratio
700000
2-
Annual margin of safety
current level of sales-break even sales in dollar
1000000-700000
300000
3-
Contribution margin ratio
contribution/sales
0.38
Fixed cost
266000+76000
342000
break even sales in dollar
fixed cost/contribution margin ratio
900000
4-
Contribution margin ratio
contribution/sales
0.38
Fixed cost with target profit
266000+396825.4
662825.4
break even sales in dollar
(fixed cost+target before tax profit)/contribution margin ratio
1744277
after tax net income
250000
tax rate
37%
before tax net income
250000/63%
396825.4
Income statement
5-
Sales
1744277.37
Variable costs
1081451.97
Contribution margin
662825.4
Fixed costs
266000
Net income before taxes
396825.4
Income taxes (37%)
146825.398
Net income after taxes
250000.002
sales
1000000
less variable cost
620000
contribution
380000
Contribution margin ratio
contribution/sales
0.38
Fixed cost
266000
1-
break even sales in dollar
fixed cost/contribution margin ratio
700000
2-
Annual margin of safety
current level of sales-break even sales in dollar
1000000-700000
300000
3-
Contribution margin ratio
contribution/sales
0.38
Fixed cost
266000+76000
342000
break even sales in dollar
fixed cost/contribution margin ratio
900000
4-
Contribution margin ratio
contribution/sales
0.38
Fixed cost with target profit
266000+396825.4
662825.4
break even sales in dollar
(fixed cost+target before tax profit)/contribution margin ratio
1744277
after tax net income
250000
tax rate
37%
before tax net income
250000/63%
396825.4
Income statement
5-
Sales
1744277.37
Variable costs
1081451.97
Contribution margin
662825.4
Fixed costs
266000
Net income before taxes
396825.4
Income taxes (37%)
146825.398
Net income after taxes
250000.002
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.