Question

Exercise 9-26 The Role of Income Taxes (LO 9-2, 9-3] For the most recent year, Triad Company had fixed costs of $180,000 and variable costs of 60% of total sales revenue, earned $55,250 of net income after taxes, and an income tax rate of 35%. Required: 1. Determine the before-tax income. 2. Determine the total contribution margin. 3. Determine the total sales. 4. Determine the breakeven point in dollar sales. (Do not round intermediate calculations.) 1. Before-tax income 2. Contribution margin 3. Total sales 4. Breakeven point in sales dollars

Answer 1

To calculate before-tax income, subtract the variable costs from the net income after taxes. The total contribution margin is obtained by subtracting the variable costs from the total sales revenue. To find the total sales, divide the total contribution margin by the contribution margin ratio. The breakeven point in dollar sales is calculated by dividing the fixed costs by the contribution margin ratio.

Step-by-step explanation:

To determine the before-tax income, we need to calculate the total variable costs by subtracting the fixed costs from the net income after taxes. The variable costs can be calculated by multiplying the total sales revenue by 60%. Then we subtract the variable costs from the net income after taxes.

To calculate the total contribution margin, we need to subtract the variable costs from the total sales revenue.

The total sales can be calculated by dividing the total contribution margin by the contribution margin ratio (40%).

The breakeven point in dollar sales can be determined by dividing the fixed costs by the contribution margin ratio (40%).

Answer 2

The before-tax income is $85,000. The total contribution margin is 0.4 times the total sales revenue. The total sales is $138,125. The breakeven point in dollar sales is $450,000.

Step-by-step explanation:

1. Before-tax income can be calculated by subtracting the net income after taxes from the total income tax amount. In this case, the net income after taxes is $55,250, and the income tax rate is 35%. So the before-tax income can be calculated as:
Before-tax income = net income after taxes / (1 - income tax rate) = $55,250 / (1 - 0.35) = $85,000

2. The total contribution margin can be calculated by subtracting the variable costs from the total sales revenue. In this case, the variable costs are 60% of total sales revenue. So the total contribution margin can be calculated as:
Total contribution margin = total sales revenue - variable costs = total sales revenue - 0.6 * total sales revenue = 0.4 * total sales revenue

3. The total sales can be calculated by dividing the net income after taxes by the contribution margin ratio. In this case, the net income after taxes is $55,250 and the total contribution margin ratio is 0.4. So the total sales can be calculated as:
Total sales = net income after taxes / contribution margin ratio = $55,250 / 0.4 = $138,125

4. The breakeven point in dollar sales can be calculated by dividing the fixed costs by the contribution margin ratio. In this case, the fixed costs are $180,000 and the contribution margin ratio is 0.4. So the breakeven point in dollar sales can be calculated as:
Breakeven point in sales dollars = fixed costs / contribution margin ratio = $180,000 / 0.4 = $450,000