Question

Problem 6.39A ad Ronald Enterprises Ltd. has estimated the following costs for producing and selling 17,800 units of its product: Direct materials Direct labour Variable overhead Fixed overhead Variable selling and administrative expenses Fixed selling and administrative expenses 124.600 35.600 30,000 53,400 37,500 by. Study Ronald Enterprises income tax rate is 10% Given that the selling price of one unit is $37, calculate how many units Ronald Enterprises would have to sell in order to break even Break-even units Assume the selling price is $42 per unit Calculate how many units Ronald Enterprises would have to sell in order to produce a profit of $25,100 before taves Target units units Calculate what price Ronald Enterprises would have to change in order to produce a profit of $27,000 after taxes if 7,500 units were produced and sold. Ronald Enterprises should charge of sales 8,100 ts were produced and sold. (Round answer to 2 calculate what price Ronald Enterprises would have to change in order to produce a before-tax profit equal to 30 decimal places, 9. 15.25.) Ronald Enterprises should charges

Answer 1

Answer 1.	Break even units	3375	Units
Answer 2.	Target	3704	Units
Answer 3.	Ronald Enterprises should charge	$                                                       32	per unit
Answer 4.	Ronald Enterprises should charge	$                                                 36.19	per unit
Detailed workings
	Calculation of variable cost per unit
		Amount	/	Units	=	Per unit
	Direct material	$                                               89,000	/	17800	=	$               5.00
	Direct Labor	$                                             124,600	/	17800	=	$               7.00
	Variable overhead	$                                               35,600	/	17800	=	$               2.00
	Variable selling and administrative expenses	$                                               53,400	/	17800	=	$               3.00
						$            17.00
Answer 1.	Break even units	3375	Units
	Calculation of contribution per unit
	Selling price per unit	$                                                 37.00
	Less: Variable cost per unit	$                                                 17.00
	Contribution per unit	$                                                 20.00
	Fixed cost
	Fixed overheads	30000
	Fixed selling and administrative expenses	37500
	Total fixed cost	67500
	Break even point in unit sales	Total Fixed Cost	=	$     67,500	=	3375
		Contribution per unit		$        20.00
Answer 2.	Target	3704	Units
	Calculation of contribution per unit
	Selling price per unit	$                                                 42.00
	Less: Variable cost per unit	$                                                 17.00
	Contribution per unit	$                                                 25.00
	Target Profit	25100
	Target units for profit of $25100	Total Fixed Cost + Target profit	=	$     92,600	=	3704
		Contribution per unit		$        25.00
Answer 3.	Ronald Enterprises should charge	$                                                       32	per unit
	After Tax profit	27000
	Tax rate	40%
	Before Tax profit required	27000			=	$          45,000
		1	-	40%
	Total sales required for profit of $45000
	Calculation per unit sales price for target profit
		Amount	x	Units	=	Per unit
	Direct material	$                                                          5	x	7500	=	$          37,500
	Direct Labor	$                                                          7	x	7500	=	$          52,500
	Variable overhead	$                                                          2	x	7500	=	$          15,000
	Variable selling and administrative expenses	$                                                          3	x	7500	=	$          22,500
	Total Variable cost					$        127,500
	Total Fixed Cost					$          67,500
	Add: Target Profit					$          45,000
	Total Sales Value					$        240,000
	Per Unit sales Price	Total Sales Value	=	$   240,000	=	$                  32
		Units		7500
Answer 4.	Ronald Enterprises should charge	$                                                 36.19	per unit
	Calculation per unit sales price for target profit of 30%
		Amount	x	Units	=	Per unit
	Direct material	$                                                          5	x	8100	=	$          40,500
	Direct Labor	$                                                          7	x	8100	=	$          56,700
	Variable overhead	$                                                          2	x	8100	=	$          16,200
	Variable selling and administrative expenses	$                                                          3	x	8100	=	$          24,300
	Total Variable cost					$        137,700
	Total Fixed Cost					$          67,500
	Total Cost					$        205,200
	Sales for profit before tax of 30%	205200			=	$ 293,142.86
		1	-	30%
	Per Unit sales Price	Sales for profit before tax of 30%	=	$   293,143	=	$            36.19
		Total Units		8100