Assume that Excellent DVDs pays income taxes of 30 per cent.
Required:
1 What is Excellent DVD's break even point in units?
2 What is the company's break even point in sales dollars?
3 How many units would Excellent DVDs have to sell in order to earn a profit of $400,000 after tax?
4 What is the firm's safety margin?
5 If Excellent DVDs direct labor costs increase by 10 per cent, what selling price per unit of product must it charge to maintain the same contribution margin ratio?
Information to assist in answering the question:
Selling price per unit $ 2500
Variable cost per unit:
Direct material $ 8.20
Direct labor $ 4.00
Manufacturing overhead $6.00
Selling costs $1.60
Total variable costs per unit $ 19.80
Annual fixed costs:
Manufacturing overhead $288,000
Selling and administrative $414,000
Total fixed costs $702,000
Forecast annual sales (140,000 units) $3,500,000