Question

Hunter & Sons sells a single model of meat smoker for use in the home. The smokers have the following price and cost characteristics. Sales price $ 79 per smoker Variable costs 40 per smoker Fixed costs 308,100 per month Hunter & Sons is subject to an income tax rate of 40 percent. Required: a. How many smokers must Hunter & Sons sell every month to break even? b. How many smokers must Hunter & Sons sell to earn a monthly operating profit of $51,480 after taxes?

Answer 1

a. 7,900

b. 10,100

Step-by-step explanation:

As for the provided information,

We know at break even point taxes shall be = 0 as there are no profits and no losses.

a. At break even: =
`(Fixed\ Cost)/(Contribution)`

Fixed Cost = $308,100

Contribution per unit = Selling price - Variable cost = $79 - $40 = $39

Therefore, break even units =
`(308,100)/(39) = 7,900 smokers`

b. In case the company wants a profit of $51,480 after tax @ 40% then,

Earnings before taxes =
`(51,480)/(1 - 0.4)` = $85,800

Therefore, number of units =
`(Fixed\ Cost + Profit\ before\ tax)/(Contribution\ per\ unit)`

=
`(308,100 + 85,800)/(39)` = 10,100