Question

Cost-Volume-Profit Analysis Gannon Company sells a single product for $15 per unit. Variable costs are $10 per unit and fixed costs are $180,000 at an operating level of 16,000 to 30,000 units. a. What is Gannon Company's break-even point in units? units b. How many units must be sold to earn $20,000 before income tax? units c. How many units must be sold to earn $30,000 after income tax, assuming a 40% tax rate? units

Answer 1

Solution:

a.

Number of units = Fixed costs /(price - unit variable cost)

= $180,000 ($15 - $10)

= $180,000 / $5

=$36,000 units

b.

Units for $20,000 = (Total fixed cost + Target profit)/(Price - Unit variable cost)

= $(180,000+$20,000)/($15 - $10)

=$200,000/$5

=40,000 units

c.

Before - tax income = After - tax income (1- tax rate)

= $30,000/(1- 0.40)

=$30,000/0.60

=$50,000

Units for $30,000 = (total fixed costs + target profit)/(price unit - unit variable costs)

= ($180,000 + $50,000)/($15 - $10)

=$230,000/$5

=46,000 units