Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Example: Kalman Company makes vases. Last year, Kalman sold 5,000 vases at a price of $12 and had the following information on costs: Unit direct

image text in transcribed

Example: Kalman Company makes vases. Last year, Kalman sold 5,000 vases at a price of $12 and had the following information on costs: Unit direct materials $1.70 Unit direct labor 0.50 Unit variable overhead 0.20 0.60 Unit selling expense Total fixed overhead Total fixed selling and administrative expense $11,000 $20,500 Kalman's operating income last year was $ Suppose Kalman wants to earn operating income of $18,000. How many units (rounded to the nearest unit) must be sold to achieve that? Units = (Total fixed cost + Target income)/(Price - Unit variable cost) = ($31,500 + $18,000)/($12 - $3) = 5,500 What level of sales revenue would result in operating income of $18,000? We can show that selling 5,500 units results in operating income of $18,000 by constructing an income statement. Sales ($12 x 5,500) Total variable cost ($3 x 5,500) $66,000 16,500 Contribution margin $49,500 Total fixed cost 31,500 Operating income $18,000 If Kalman wanted to earn operating income of $21,000 rather than $18,000, the necessary number of units sold would be If Kalman's contribution margin ratio were 40%, the sales dollars to earn $18,000 in operating income would be higher Tower Units and Sales to Earn After-Tax Target Profit the same When looking for the number of units, or amount of sales dollars to earn a target profit, we have been talking about before-tax profit. If a company wants to determine the units or sales dollars to earn an after-tax target profit, that profit must be rantated into before tastar This inclos...totas atrod tatar before tasoft ist after ta fiti notast af te bredaran

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fraud Smart

Authors: K. H. Spencer Pickett

1st Edition

0470682582, 978-0470682586

More Books

Students also viewed these Accounting questions