Accounting Cost-Volume-Profit

• May 30th 2010, 07:30 AM
Hockey_Guy14
Accounting Cost-Volume-Profit
Got a problem that I need some help with. Im finding it difficult to find what numbers to use to find the answers.

The company has estimated the following costs for producing and selling 15,000 units of its product:

Direct materials = \$75,000
Direct Labour = 90,000
Variable selling and administrative expenses = 60,000
Fixed selling and administrative expenses = 40,000

Their income tax rate is 40%

a) Given that the selling price of one unit is \$38, how many units would they have to sell in order to break even?

b) At a selling price of \$43 per unit, how many units would have to be sold in order to produce a profit of \$25,000 before taxes?

c) If 7,500 units were produced and sold, what price would they have to charge in order to produce a profit of \$30,000 after taxes?

d) If 9,000 units were produced and sold, what price would they have to charge in order to produce a before-tax profit equal to 30% of sales?

For a), they give you the variable cost per unit of \$18, which means the unit contribution margin is \$20, but im not sure how to find that and I need to show my work, but my answer for the number of units to be sold to break even is 3,500 (fixed costs divided by unit contribution margin)

Any help would be great. Thanks
• May 30th 2010, 08:10 AM
Hockey_Guy14
I think I might have found some answers, if someone could possibly verify them for me that would be great. Thanks

a) Variable cost per unit = 75,000+90,000+45,000+60,000/15,000
Therefore variable cost per unit = \$18

b) Selling price = 43, VC per unit = 18, Contribution margin = 43-18 = 25
Target Net income = 25,000
Required sales = Fixed costs + Target Net income/CM per unit
= 70,000+25,000/25
= 3,800 units

c) 7500 units sold, profit of 30,000 after taxes, VC per unit = 18
First find the CM per unit
CM per unit = fixed costs + (target net income/1-tax rate)/units sold
= 70,000 + (30,000/.6)/7500
= 120,000/7500
= 16
Selling price = VC per unit + CM
= 18 + 16
= \$34