In June 2008, when gasoline prices were at an all-time high (more than $3.81 per gallon), Chrysler Motor Company promoted its Jeep vehicle with the offer of either $4,250 off the price of the vehicle or the guarantee that the buyer would not pay more than $2.75 per gallon of gas for the next 3 years (the details of the guarantee could vary by dealer). Required: 1. Assume that the Jeep vehicle you are interested in gets 15 mpg combined city/highway and that at the time of purchase, you expected gasoline prices to average $4.85 per gallon over the next 3 years. How many miles would you have to drive the vehicle in the next 3 years to make the guarantee more attractive than the $4,250 discount? (Do not round intermediate calculations. Round your final answer up to the nearest whole number.) 2. Assume the same information as in requirement 1, except the average price of gas for the next 3 years is not known and you are likely to drive 9,000 miles per year. What would the breakeven gasoline price in the coming 3 years need to be to make you indifferent between the two options? (Round your answer to 3 decimal places.) 1. Miles to be driven over the three years must exceed 2. Breakeven average gasoline price Exercise 9-26 The Role of Income Taxes [LO 9-2, 9-3] For the most recent year, Triad Company had fixed costs of $310,000 and variable costs of 80% of total sales revenue, earned $94,250 of net income after taxes, and an income tax rate of 35%. Required: 1. Determine the before-tax income. 2. Determine the total contribution margin. 3. Determine the total sales. 4. Determine the breakeven point in dollar sales. (Do not round intermediate calculations.) 2. Contribution margin 3. Total sales 4. Breakeven point in sales dollars Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his most recent year. Cost of goods sold represents the cost paid for the merchandise he sells, while operating costs represent rent, insurance, and salaries, which are entirely fixed. Contribution margin Operating costs Operating profit $ 580,000 359,600 220,400 96,520 $ 123,880 Required: 1-a. What is Harold's margin of safety (MOS) in dollars? (Do not round intermediate calculations.) 1-b. What is the margin of safety (MOS) ratio? (Input your answer as a percentage rounded to 2 decimal places (i.e., 0.1567 = 15.67%).) 3. What is Harold's margin of safety (in dollars) and operating profit if sales should fall to $510,000? (Do not round intermediate calculations.) 1-a. Margin of safety (MOS) 1-b. MOS ratio Margin of safety Operating profit 3
