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: 1. Calculate the breakeven point in units. 2. Calculate the breakeven point in sales dollars. 3. Calculate the units required to make a before-tax profit of $40,000. 4. Calculate the sales dollars required to make a before-tax profit of $35,000. (Do not round intermediate calculations.) 5. Calculate 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

Results are below.

Step-by-step explanation:

a) To calculate the break-even point in units, we need to use the following formula:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 75,000 / 4

Break-even point in units= 18,750

b)To calculate the break-even point in dollars, we need to use the following formula:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 75,000 / (4/10)

Break-even point (dollars)= $187,500

c) Desired profit= $40,000

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= (75,000 + 40,000) / 4

Break-even point in units= 28,750

d) Desired profit= $35,000

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= (75,000 + 35,000) / 0.4

Break-even point (dollars)= $275,000

e) Desired profit (before taxes)= 25,000/0.7= $35,714

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= 110,714/4

Break-even point in units= 27,679

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= 110,714/0.4

Break-even point (dollars)=$276,785