In the year 2013, Wiggins Processing Company had the following contribution inco

Question

In the year 2013, Wiggins Processing Company had the following contribution income statement:

With the current cost structure, including fixed costs of $285,000, what dollar sales volume is required to provide an after-tax net income of $200,000?

WIGGINS PROCESSING COMPANY
Contribution Income Statement
For the Year 2013 Sales $ 1,200,000 Variable costs Cost of goods sold $ 420,000 Selling and administrative 200,000 (620,000) Contribution margin 580,000 Fixed Costs Factory overheard 205,000 Selling and administrative 80,000 (285,000) Before-tax profit 295,000 Income taxes (36%) (106,200) After-tax profit $ 188,800

Explanation / Answer

At a sales volume of $ 1,200,000, the After Tax Profit is $ 188,800. Let us assume the amount of sales required for obtaining the after tax profit of $ 200,000 as X Contribution Margin at present levels = $ 580,000 / $ 1,200,000 = 48.33% Hence, (48.33%X - $ 285,000) X 64% (36% tax base) = $ 200,000 Thus, 30.93%X - $ 182,400 = $ 200,000 or X = ($ 200,000 + $ 182,400) / 30.93% = 1236340 $

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