In the year 2013, Wiggins Processing Company had the following contribution inco
ID: 2467740 • Letter: I
Question
In the year 2013, Wiggins Processing Company had the following contribution income statement: Determine the annual break-even point in sales dollars. Determine the annual margin of safety in sales dollars. What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $57,000? 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? Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.Explanation / Answer
Answer a Break even point in sales dollar = Fixed cost / Contribution margin % Contribution margin % = (580000/1200000)*100 = 48.33% Break even point in sales dollar = 285000/ 48.33% = $589696 Answer b Margin of safety in sales dollar = Actual sales - Break even point sales Margin of safety in sales dollar = 1200000 - 589696 = $610304 Answer c Break even point in sales dollar = Fixed cost / Contribution margin % Break even point in sales dollar = 342000 / 48.33% = $707635 Answer d Contribution Income statement In $ Sales 12,36,292 Less : Variable cost (51.67% of sales) 6,38,792 Contribution margin 5,97,500 Less: Fixed cost 2,85,000 Profit before tax (profit after tax / 64%) 3,12,500 Less : Tax @36% 1,12,500 Profit after tax 2,00,000 Required dollar sales volume to get after tax income of $200000 = $1236292