BREAKEVEN- The Car Company

NAME ______________________________ Due _____________

The car company manufactures and sells Waxworks car polish. This expensive polish is priced at $20 per can (applicator sponge included). Car Company's costs are:

Fixed costs (per month) Variable Costs per can

Manufacturing $500000, Manufacturing $11

Selling costs $292000, Selling $3

1. Find the monthly break-even quantity using the above data.

2. How many cans must be sold to earn $60000 per month above breakeven (before taxes)?

3. What is the Contribution Margin Ratio (CMR), using the costs in (2)?

4. If variable selling costs increase by 20% per can, what is the new break even quantity, assuming $60000 per month before taxes is to be earned?

5. Assuming a 40% tax rate, how many cans must be sold to earn an after-tax income of $90000 above breakeven, and assuming selling costs increase 20% per can?

6. What is the DOL in (4) above?