Stan\'s Cans, Inc. expects to earn $150,000 next year after taxes on sales of $2

Question

Stan's Cans, Inc. expects to earn $150,000 next year after taxes on sales of $2,200,000. Stan's manufactures only one size of garbage can and is located in the small, but beautiful, town of Mount Dora, Florida. Stan sells his cans for $8 a piece and they have a variable cost of $2.40 a piece. Stan's tax rate is currently 34%. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

a. What are the firm's expected fixed costs for next year?

b. What is the break-even point in units?

Explanation / Answer

taxableincome = 150000/0.66 = 227272.7273

grossprofit = 2200000 * 0.66 = 1452000

fixed cost = 1452000 - 227272.7273 = 1224727.27

let x units be break even point

2200000 - 1224727.27- 2.4x= 8x/

10.4 x = 975272.73

x= 93776.....breakeven units

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