BEP CVP before and after tax Equalizer Corporation makes and

(BEP, CVP before and after tax) Equalizer Corporation makes and sells jar lid openers information for one unit is as follows: 2. . Cost Direct material Direct labor Variable factory overhead Variable selling expenses $1.00 .50 25 05 $1.80 Total variable costs Total Fixed cost $194.400 Each lid opener sells for $4.50. Current annual production and sales volume is 150,000 lid openers. A pre-determined fixed factory overhead rate can be computed based on this activity level. Required: Compute the unit contribution margin and contribution margin ratio for Equalizer Corporation\'s product. (5 pts) a. b. Compute the breakeven point in units for Equalizer Corporation, using contribution c. Compute the breakeven point in sales dollars for Equalizer Corporation, using d. If Equalizer Corporation wants to earm $43,200 of before-tax profits, how many openers margin. (10 pts) contribution margin ratio. (10 pts) will it have to sell? (10 pts) If Equalizer Corporation wants to earn $40,500 after taxes and is subject to a 25 percent tax rate, how many units will it have to sell? (10 pts) If Equalizer Corporation can sell an additional 12,000 openers overseas for $3.50. Variable costs will increase by $0.20 for shipping expenses, and fixed costs will increase by $25,000 because of the purchase of a new machine. This is a one-time only sale and will not affect domestic sales this year on in the future. Should Equalizer Corporation sell additional units? (15 pts) e. f.

Solution

Answer

A

Sale Price per unit

4.5

(Less) Variable cost

B

Direct Material

1

C

Direct Labor

0.5

D

Factory Overhead

0.25

E

Selling Expenses

0.05

F=B+C+D+E

Total variable cost

1.8

G=A-F

Contribution Margin per unit

$ 2.7

H=G/A

Contribution margin ratio

60.00%

A

Fixed Costs

194400

B

Contribution Margin per unit

2.7

C=A/B

Break Even point in Units

72000

A

Fixed Costs

194400

B

Contribution margin ratio

60%

C=A/B

Break Even point in Sales dollars

324000

A

Target profit

43200

B

Fixed Cost

194400

C=A+B

Contribution required to be earned

237600

D

Contribution per unit

2.7

E=C/D

Units required to be sold to earn target profit

88000

A

After tax target profit

40500

B

Tax Rate

25%

C=A/(100-B)

Before Tax target price [40500 / 75%]

54000

D

Fixed Cost

194400

E=C+D

Contribution required to be earned

248400

F

Contribution per unit

2.7

G=E/F

Units required to be sold to earn target profit

92000

A

Sales price [given]

3.5

B

Total variable cost [given 1.8 + 0.2]

2

C=A-B

Contribution per unit

7

D=C x 12000 units

Total contribution margin [12000 * 7]

84000

E

Fixed Cost increase

25000

F=D-E

Net additional income from overseas operations

59000

Since, Contribution is exceeding the expected Fixed Cost, The company should sell additional units in Overseas.

A	Sale Price per unit	4.5
	(Less) Variable cost
B	Direct Material	1
C	Direct Labor	0.5
D	Factory Overhead	0.25
E	Selling Expenses	0.05
F=B+C+D+E	Total variable cost	1.8
G=A-F	Contribution Margin per unit	$ 2.7
H=G/A	Contribution margin ratio	60.00%