DATA INPUT
Units sold 100,000
Sales 2,000,000$
Costs: Fixed Variable
Direct material –$ 600,000$
Direct labor – 400,000
Manufacturing overhead 200,000 300,000
Selling and administrative 220,000 100,000
Total costs 420,000$ 1,400,000$ 1,820,000
Budgeted operating income 180,000$
Tax rate 40%
SOLUTION
1. Break-even point in units and in sales dollars:
(a) Unit contribution margin = sales – variable costs / units sold
Break-even point (in units) = fixed costs /unit contribution margin
(b) Contribution- margin ratio =/
sales revenue
Break-even point (in sales dollars) =fixed costs / contribution-margin ratio
2. Number of units of sales required to earn after-tax profit:
Number of units of sales required (fixed costs + (target after tax net income / (1-t))) /
to earn target after-tax net income =unit contribution margin
3. Break-even sales in units if fixed costs increased:
5. Number of units of sales required to earn after-tax profit:
Number of units of sales required (fixed costs + (target after-tax net income / (1-t))) /
to earn target after-tax net income =unit contribution margin
contribution margin