Rose Corporation manufactures a single electronic product ca

Rose Corporation manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device: Direct labor $180 Direct materials 240 Factory overhead 105 Total variable production costs 525 Marketing costs 75 Total variable costs $600 Rose’s income tax rate is 40%, and annual fixed costs are $4,000,000.

Required: a) If Rose Corporation achieves a sales and production volume of 8,000 units, determine the net income (loss).

b) Determine the annual sales revenue to achieve an after tax net income of $540,000.

Solution

B Selling Price 900 Income Statement: Variable Costs: Selling Price 7200000 Direct Labor 180 Variable Costs: Direct Material 240 Direct Labor 1440000 Factory OH 105 Direct Material 1920000 Marketing Costs 75 Factory OH 840000 Total Variable Costs 600 Marketing Costs 600000 Total Variable Costs 4800000 A Contribution Margin 300 Contribution Margin 2400000 A/B Contribution Margin Ratio 33.33% Less: Fixed Costs 4000000 Income Before Tax -1600000 Less: Income Tax 0 Income After Taxes -1600000 Desired After Tax Income 540000 Add: Income Tax 360000 Desired Before Tax Income 900000 Add: Fixed Costs 4000000 A Required Contribution Margin 4900000 B Contribution Margin Ratio 33.33% A/B Required Annual Sales 14700000