Question
Kirkland Corporation sells a single product for $40. Its management estimates the costs of manufacturing and selling its product per unit at the companys average
Kirkland Corporation sells a single product for $40. Its management estimates the costs of manufacturing and selling its product per unit at the companys average normal capacity of 1,000 units per month as follows:
Direct materials $12.00 Direct
labour $7.20
Manufacturing overheadvariable $3.20
Manufacturing overheadfixed $3.20
Selling expensesvariable $1.80
Selling expensesfixed $2.40
Administrative expensesvariable $0.80
Administrative expensesfixed $1.60
Required: 1. Assuming fixed costs and net sales are spread evenly throughout the year; calculate Kirkland's annual break-even point in (1) units and (2) dollars.
2.Assuming Kirkland Corporation increases its selling price by 30% and all other factors (including demand) remain constant, determine by what percentage annual profits will increase.
3. Assume the price remains at $40 per unit and variable costs remain the same per unit, but fixed costs increase by 30% annually. Calculate the percentage increase in unit sales required to achieve the same level of annual profit at the current annual sales.
4. Determine the sales dollars required to earn an annual operating income of $72,000 before tax. Kirkland Corporation's income tax is 40%.
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