salary rates for the year ending June 30, 19X4 remain the same as for the year ended June 30, 19X3, should the pediatrics department rem the additional 20 beds? Show the annual gain or loss from the additions beds. (CPA) 14-17 Breakeven Target Profit Mr. Calderone started a pizza restaurant in 1980. For this purpose a building was rented for $400 per month. Two people were hired to work full time at the restaurant and six college students were hired to work 30 hours per week delivering pizza. An outside accountant was hired to provide tax and bookkeeping services for $300 per month. The necessary restaurant equipment and delivery cars were purchased with cash. Mr. Calderone has noticed that expenses for utilities and supplies have been rather constant. Mr. Calderone increased his business between 19X0 and 19X3 Profits have more than doubled since 19X0. Mr. Calderone does not understand why his profits have increased faster than his volume. A projected income statement for 19X4 has been prepared by the accountant and is shown below: CALDERONE COMPANY Projected Income Statement For the Year Ended December 31, 19X4 Sales Cost of food sold $28,500 $95,000 Wages and fringe benefits of restaurant help 8,150 Wages and fringe benefits of delivery people 17,300 Rent 4,800 Accounting services 3,600 Depreciation of delivery equipment Depreciation of restaurant equipment 5,000 Utilities 3,000 Supplies (soap, floor wax, etc.) 2,325 Net income before taxes 1,200 73,875 Income taxes 21,125 Net income 6,338 $14,787 Note: The average pizza sells for $5.00. Assume that Mr. Calderone pays 30% of his income in income taxes. 1 What is the breakeven point in number of pizzas that must be sold? 2 Mr. Calderone would like an after-tax net income of $20,000. What volume must be reached in number of pizzas in order to obtain the desired income? 3 Briefly explain to Mr. Calderone why his profits have increased at a faster rate than his sales. 4-18 Cost-Volume-Profit Analysis with Multiple Products Hewtex Electron (CMA) ics manufactures two products-tape recorders and electronic calcula tors-and sells them nationally to wholesalers and retailers. The Hewtex13:31 65 +62 898-5833-535 18 March, 08:55 . . . n the same as for department rent management is very pleased with the company's performance for the om the additional current fiscal year. Projected sales through December 31, 19X7, indicate that 70,000 tape recorders and 140,000 electronic calculators will be sold this year. The projected earnings statement, which appears below, shows (CPA) that Hewtex will exceed its earnings goal of 9% on sales after taxes. zza restaurant in The tape recorder business has been fairly stable the last few years, per month. Two and the company does not intend to change the price of this product. t and six college However, the competition among manufacturers of electronic calculators vering pizza. An has been increasing. Hewtex's calculators have been very popular with eping services for consumers. In order to sustain this interest in their calculators and to and delivery cars meet the price reductions expected from competitors, management has that expenses for decided to reduce the wholesale price of its calculator from $22.50 to $20.00 per unit effective January 1, 19X8. At the time the company 19X0 and 19X3. plans to spend an additional $57,000 on advertising during fiscal year Iderone does not 19X8. As a consequence of these actions, management estimates that his volume. 80% of its total revenue will be derived from calculator sales as compared prepared by the to 75% in 19X7. As in prior years, the sales mix is assumed to be the same at all volume levels. The total fixed overhead will not change in 19X8, nor will the variable overhead rates (applied on a direct labor hour base). However, the cost of materials and direct labor is expected to change. Hewtex estimates that material costs will drop 10% for the tape recorders and 20% for the calculators in 19X8. However, direct labor $95,000 rates for both products will increase 10% in the coming year. 500 150 HEWTEX ELECTRONICS 300 Projected Earnings Statement 800 For the Year Ended December 31, 19X7 600 DOO Tape Electronic Recorders Calculators 325 Total Total 200 73,875 Amount Per Amount Per Total 21,125 Unit (000 Omitted) Unit (000 Omitted) 6,33 (000 Omitted) $14,787 Sales $1,050 $15.00 $3,150 $22.50 $4,200.0 t Mr. Calderone Production costs Materials $ 280 $ 4.00 $ 630 $ 4.50 $ 910.0 Direct labor 2.00 560.0 Variable overhead 140 420 3.00 2.00 280 2.00 420.0 must be sold? Fixed overhead 140 280.0 70 1.00 210 1.50 $20,000. What Total production costs $ 9.00 $1,540 $11.00 $2,170.0 er to obtain the $ 630 Gross margin $ 420 $ 6.00 $1,610 $11.50 $2,030.0 e increased at a Fixed selling and 1,040.0 (CMA administrative expense $ 990.0 Net income before income taxes 544.5 ewtex Electron- Income taxes (55%) ctronic calcula- Net income $ 445.5 ers. The Hewter