Question - Multiple Product Planning with Taxes
In the year 2008, Wiggins Processing Company had the following contribution income statement:
|
Sales
|
|
$1,000,000
|
|
Variable costs
|
|
|
|
Cost of goods sold
|
$440,000
|
|
|
Selling and administrative
|
200,000
|
(640,000)
|
|
Contribution margin
|
|
360,000
|
|
Fixed Costs
|
|
|
|
Factory overhead
|
154,000
|
|
|
Selling and administrative
|
80,000
|
(234,000)
|
|
Before-tax profit
|
|
126,000
|
|
Income taxes (39%)
|
|
(49,140)
|
|
After-tax profit
|
|
$76,860
|
HINT: Round the contribution margin ratio to two decimal places for your calculations below.
(a) Determine the annual break-even point in sales dollars.
(b) Determine the annual margin of safety in sales dollars.
(c) What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $72,000?
(d) With the current cost structure, including fixed costs of $234,000, what dollar sales volume is required to provide an after-tax net income of $270,000?
(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.