Question

Question 2 (CVP Analysis) (14 marks) ohan Company's typical yearly production and sale data are as given: The following date is based on the production and sale of 6,000 units of their main product. $120.00 per unit Selling price per unit Cost of goods sold: $10.00 per unit $20.00 per unit $10.00 per unit $15.00 per unit Variable Manufacturing Overhead.... $55,00 per unit _ ..65.00 per unit ..._. Gross Profit Margin Operating Costs $12.00 per unit $15.00 per unit $18.00 per unit $45.00 per unit S 20.00 per unit Sales Commissions (10% of Sales). Fixed Administrative Salaries . Income Taxes (40%) Required a) How many units would the company have to produce and sell if they desired an after-tax net income of $108,000? (income tax rate is 40%).

Answer 1

Answer 1
Direct material	$            10.00
Direct labor	$            20.00
Variable overhead	$            10.00
All variable Manufacture overhead Cost per unit	$            40.00
Add: Sales Commissions	$            12.00
Total Variable cost per unit	$            52.00
Selling price per unit	$          120.00
Less: Variable cost per unit	$            52.00
Contribution margin per unit	$            68.00
Fixed Manufacture overhead (6000*15)	$          90,000
Fixed sales salaries (6000*15)	$          90,000
Fixed administrative salaries (6000*18)	$        108,000
Total Fixed cost	$        288,000
desired after tax net income	$        108,000
Tax rate is 40% then 60% of income before tax portion for net income.
Desired Before tax income (108000/60%)	$        180,000
Desired Before tax income	$        180,000
Add: Total Fixed cost	$        288,000
Total contribution required	$        468,000
Divided by: Contribution margin per unit	$            68.00
Units required to sold for desired net income of $ 108,000	6,882

Answer 2
All variable Manufacture overhead Cost per unit (40 + (40*10%))	$            44.00
Add: Sales Commissions	$            12.00
Total Variable cost per unit	$            56.00
Selling price per unit	$          120.00
Less: Variable cost per unit	$            56.00
Revised Contribution margin per unit	$            64.00
Multiply: Number of units sold	9,000
Total Contribution	$        576,000
desired after tax net income	$        120,000
Tax rate is 40% then 60% of income before tax portion for net income.
Desired Before tax income (120000/60%)	$        200,000
Total Contribution	$        576,000
Less: Desired Before tax income	$        200,000
Maximum Fixed Cost	$        376,000
Fixed Manufacture overhead (90000 + (90000*20%))	$        108,000
Fixed sales salaries (6000*15)	$          90,000
Fixed administrative salaries (6000*18)	$        108,000
Total Fixed cost	$        306,000
Maximum Fixed Cost	$        376,000
Less: Total Fixed cost	$        306,000
Maximum spending for advertising	$          70,000