Pines Inc. produces and sells two products. During the most recent month, sales
ID: 2425560 • Letter: P
Question
Pines Inc. produces and sells two products. During the most recent month, sales of Product A were $60,000 and its variable costs were $40,000. Product B456's sales were $20,000 and its variable costs were $8,000. The firm has a 25% tax rate and earned an after-tax profit of $12,000.
Required:
a. If the product mix remains constant, what is he overall break-even point in sales dollars for the company.
b. If sales double, and the product mix remains constant, what is the maximum level of fixed costs to earn a total target profit of $20,000?
Explanation / Answer
Pines Inc. Net profit
Sale(60000 + 20000) 80000
less: variable cost(40000 + 8000) 48000
contribution margin 32000
less: fixed cost(32000-16000) 16000
Profit before tax(4000+12000) 16000
less: tax [12000*(25%) /(100-% 25%) 4000
Net profit 12000
a. break even sale = fixed cost / contribution margin
= 16000 / 0.4
= $40000
Note:- contribution margin
= 32000 / 80000 * 100
=40%
b sale = 80000 * 2
= $160000
less: variable cost = 48000 * 160000 / 80000
= $96000
contribution margin = 64000
sale = fixed cost + variable cost + profit
160000 = fixed cost + 96000 + 20000
160000 = fixed cost + 116000
fixed cost = 44000