Cohen Company produces and sells socks. Variable costs are $5.40 per pair, and f
ID: 2516016 • Letter: C
Question
Cohen Company produces and sells socks. Variable costs are $5.40 per pair, and fixed costs for the year total $76,500. The selling price is $9 per pair.
Calculate the units required to make a before-tax profit of $45,000.
Calculate the sales in dollars required to make a before-tax profit of $38,700. (Do not round intermediate calculations.)
Calculate the sales, in units and in dollars, required to make an after-tax profit of $28,700 given a tax rate of 30%. (Do not round intermediate calculations. Round your answers up to the nearest whole number.)
Cohen Company produces and sells socks. Variable costs are $5.40 per pair, and fixed costs for the year total $76,500. The selling price is $9 per pair.
Explanation / Answer
1. Break Even Point in Units = Fixed Cost / Contribution Margin Per Unit
= $ 76,500 / ( Selling Price Per Unit - Variable Cost Per Unit)
= $ 76,500 / ($ 9- $ 5.40)
= 21,250 Units
2. Break Even Point in Sales Dollars =
=Fixed Cost / Contribution Margin Ratio
= $ 76,500 / 40%
= $ 191,250
Contribution Margin ratio = Contribution Margin Per Unit / Selling Price Per Unit *100
= $ 3.6/$ 9*100
= 40%
3. Required Profit = $ 45,000
Add: Fixed Cost = $ 76,500
Hence, Contribution Required = $ 121,500
Contribution Margin Per Unit = $ 3.60
Hence units required to make a before-tax profit of $45,000 = Contribution Margin Required /Contribution Margin Per Unit
= $ 121,500 / $ 3.60
= 33,750 Units
d.
Required Profit = $ 38,700
Add: Fixed Cost = $ 76,500
Hence, Contribution Required = $ 115,200
Contribution Margin Ratio = 40%
Hence dollars sales required to make a before-tax profit of $45,000 = Contribution Margin Required /Contribution Margin Ratio
= $ 115,200/ 40%
= $ 288,000