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QUESTION 1 (15 marks) The 4 x 4 Shop is a large retailer of equipment for pickup trucks. An income statement for the company's bed
QUESTION 1 (15 marks) The 4 x 4 Shop is a large retailer of equipment for pickup trucks. An income statement for the company's bed liner department for the most recent quarter is presented below: 4x4 Shop Income Statement - Liner Department For the First Quarter of the Current Year $700,000 250,000 450,000 Sales revenue (2,000 liners). Cost of goods sold......... Gross profit Selling and administrative expenses: Selling expenses Administrative expenses Profit before tax Income tax (40%) Net profit/income $195,000 145,000 340,000 $110,000 44,000 $66,000 The liners sell, on average, for $350 each. The department's variable selling expenses and administrative expenses are $35 and $18.125 per liner sold. The fixed selling expenses and administrative expenses are $125,000 and $108,750 respectively. The company purchases its liners from a supplier at a cost of $125 per liner, which is considered variable expense. Required: a) What is contribution margin per unit of product? (Keep to 3-decimal places) (2 marks) b) What is the company's breakeven point in units? (2 marks) c) What is the company's margin of safety in units? (2 marks) d) What is the dollar level of sales necessary to attain a target profit (profit before tax) of $200,000? (Round to the nearest unit) (3 marks) e) What is the dollar level of sales necessary to attain an after-tax profit of $120,000? (3 marks) f) If the company increases fixed selling expenses by $10,000 and variable selling expenses by $5 per unit, unit sales are expected to increase by 10% (200 units). Calculate the company's after-tax profit if these changes were to occur, assuming the same tax rate of 40% and unit selling price of $350)
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