Question
In the year 2013, Wiggins Processing Company had the following contribution income statement: Sales $1,200,000 Variable Costs Cost of goods sold $420,000 Selling and administrative
In the year 2013, Wiggins Processing Company had the following contribution income statement:
Sales | $1,200,000 | |
Variable Costs | ||
Cost of goods sold | $420,000 | |
Selling and administrative | $200,000 | (620,000) |
Contribution margin | $580,000 | |
Fixed costs | ||
Manufacturing overhead | $205,000 | |
Selling and administrative | $80,000 | (285,000) |
Before-tax profit | $295,000 | |
Income taxes (36%) | (106,200) | |
After-tax profit | $188,800 |
Required:
(a.) Determine the annual break-even point in sales dollars
(b.) Determine the annual margin of safety in sales dollars.
(c.) What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $57,000?
(d.) With the current cost structure, including fixed costs of $285,000, what dollar sales volume is required to provide an after-tax net income of $200,000?
(e.) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.
Sales | |
variable costs (52% of sales) | |
Contribution Margin | |
Fixed Costs | |
Net Income before taxes | |
Income Taxes (36% | |
Net Income After Taxes |
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