Remsen Hot Dogs, Inc. has determined that its targeted after-tax earnings should
ID: 2458722 • Letter: R
Question
Remsen Hot Dogs, Inc. has determined that its targeted after-tax earnings should be at least $35,000. The company's estimated tax liability on its income is projected to be $52,000. The industry average contribution margin for hot dog sales is 70%. Based on this information, determine the following. What dollar amount of sales must be achieved to teach the goal if fixed costs are $110,0007 How would your answer in #1 (above) change if taxes were $45,000 instead of $52,000 (assume fixed costs are still #13,000)? How many more or fewer hot dogs must be sold?. If instead the company's revenues per unit are $5, variable costs per unit are $1, what dollar amount of sales would be needed to cam $200,000 after-tax income if fixed costs ate $110,000 and taxes are $35,000? What is the contribution margin ratio in #3 (above)?Explanation / Answer
Q. 1). Earnings before Tax = Earnings after Tax + Tax liability
= 350000 + 52000
= $ 402000
Contribution = Earnings before tax + Fixed costs
= 402000 + 130000
= $ 532000
The amount of sales must be achieved to reach the goal if fixed costs are $ 130000:-
= 532000 / 70 %
= $ 760000
Conclusion:- 1) Sales = $ 760000
Q. 2). If Taxes were $ 45000 instead of $ 52000 in Part 1.
Earnings before Tax = Earnings after Tax + Tax liability
= 350000 + 45000
= $ 395000
Contribution = Earnings before tax + Fixed costs
= 395000 + 130000
= $ 525000
The amount of sales must be achieved to reach the goal if fixed costs are $ 130000:-
= 525000 / 70 %
= $ 750000
Conclusion:- 2) Sales = $ 750000 (If Taxes were $ 45000 instead of $ 52000 in Part 1.)
Q. 3.)
Sales [ 100 * 345000 / 80 ]
(-) Variable Costs [ 431250 - 345000 ]
431250
86250
Contribution [ 235000 + 110000 ]
(-) Fixed Costs
345000
110000
Earnings before tax (EBT) [200000 + 35000 ]
(-) Taxes
235000
35000
Conclusion:- 3) The dollar amount of sales needed = $ 431250
Q.4. Contribution margin ratio in Q. 3. = Sales - Variable costs / Sales
= 5 - 1 / 5
= 4/5
= 0.80 i.e. 80 %
Sales [ 100 * 345000 / 80 ]
(-) Variable Costs [ 431250 - 345000 ]
431250
86250
Contribution [ 235000 + 110000 ]
(-) Fixed Costs
345000
110000
Earnings before tax (EBT) [200000 + 35000 ]
(-) Taxes
235000
35000
Earnings after Tax (Given) 200000