Question

Cohen Company produces and sells socks. Variable cost is $6 per pair, and fixed costs for the year total $75,000. The selling price is $10 per pair. Required Calculate the following: 1. The breakeven point in units. 2. The breakeven point in sales dollars. 3. The units required to make a before-tax profit of $40,000. 4. The sales dollars required to make a before-tax profit of $35,000. 5. The sales, in units and in dollars, required to make an after-tax profit of $25,000 given a tax rate of 30%.

Answer 1

1. 18,750

2. $187,500

3. 28,750

4. $275,000

5. 27,679 or $276,790

Step-by-step explanation:

As for the provided information, we have,

Sale price per unit = $10

Variable cost per unit = $6

Contribution per unit = $4

Thus, contribution margin = $4/$10 = 40%

Fixed cost = $75,000

Therefore,

1. Break Event Point in Units =
`(Fixed\ Cost)/(Contribution\ per\ unit)`

=
`(75,000)/(4) = 18,750`

2. Break Even in Sales =
`(75,000)/(0.40) = 187,500`

3. Before tax profit = $40,000

Net to be recovered from contribution = $40,000 + $75,000 = $115,000

Thus, units required =
`(115,000)/(4) = 28,750`

4. Sales in dollars for profit before tax of $35,000

Thus, net to be recovered as a contribution margin = $35,000 + $75,000 = $110,000

Sales in Dollars =
`(110,000)/(0.40) = 275,000`

5. After tax profit = $25,000

Tax rate = 30%

Profit before tax =
`(25,000)/((1 - 0.3)) = $35,714.29`

Total to be recovered from contribution = $35,714.29 + $75,000 = $110,714.29

Sales in units = $110,714.29/4 = 27,679

Sales in dollars = 27,679
`*` 10 = $276,790