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Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs. Selling price per case (24 bottles) of juice$75 Variable cost per case (24 bottles) of juice$36 Fixed costs per year associated with this product$12,168,000 Income tax rate 40% Required: a. Compute Odd Wallow Drinks' break-even point in units per year. b. How many cases must Odd Wallow Drinks sell to earn $1,872,000 per year after taxes on the juice

Respuesta :

Answer:A. 312,000 units

B. 392,000 units

Step-by-step explanation:

This is Cost Volume Profit Analysis question, breakeven point is the point where the company is neither making a profit nor a loss.

From the attachment, the formula for Breakeven point in units is Total Fixed cost / Contribution per unit(CPU)

Contribution per unit(CPU) is computed as Selling price per unit - Variable cost per unit $75-$36=$39

A. Total fixed cost = $12,168,000

CPU = $39

$12,168,000 / $39 = 312,000 units.

B. The first thing to find is the Profit before tax. To get profit before tax we convert our profit after tax(PAT) back using the tax rate given. Formula is PBT/ (1-tax rate)

The formula to find the units= TFC+PBT / CPU

Tax rate-40%

PAT- $1,872,000

PBT=$1,872,000 / (1-0.4) = $3,120,000

No of units at a targeted PAT= $12,168,000+$3,120,000 / $39 = 392,000 units

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