A) Assume the following cost information for Fernandez Company:

Selling price $120 per unit

Variable costs $80 per unit

Total fixed costs $80,000

Tax rate 40%

q1) What volume of sales dollars is required to earn an after-tax net income of $30,000?

q2) What is the number of units that must be sold to earn an after-tax net income of

$42,000?

B) Cheaney Manufacturing produces a single product that sells for $200. Variable costs per unit

equal $50. The company expects total fixed costs to be $120,000 for the next month at the

projected sales level of 2,000 units. In an attempt to improve performance, management is

considering a number of alternative actions. Each situation is to be evaluated separately.

Required:

(a) What is the current breakeven point in terms of number of units?

(b) Suppose that management believes that a $24,000 increase in the monthly advertising

expense will result in a considerable increase in sales. Sales must increase by how

much to justify this additional expenditure?

(c) Suppose that management believes that a 20% reduction in the selling price will

result in a 20% increase in sales. If this proposed reduction in selling price is

implemented, state how much will the operating income increase, decrease or remain

constant.