Time-Adjusted Cost-Volume-Profit Analysis with Income Taxes
Honeydukes Treat Shop is considering the desirability of producing a new chocolate candy called Pleasure Bombs. Before purchasing the new equipment required to manufacture Pleasure Bombs, Neville Long, the shop's proprietor performed the following analysis:
Unit selling price $2.18
Variable manufacturing and selling costs 1.73
Unit contribution margin $0.45
Annual fixed costs
Depreciation (straight-line for 4 years) $21,750
Other (all cash) 45,000
Total $67,500
Annual break-even sales volume = $67,500 / $0.45 = 150,000 units
Because the expected annual sales volume is 160,000 units, Long decided to undertake the production of Pleasure Bombs. This required an immediate investment of $87,000 in equipment that has a life of four years and no salvage value. After four years, the production of Pleasure Bombs will be discontinued.
With a 40 percent tax rate and a 8 percent time value of money, determine the annual unit sales required to break even on a time-adjusted basis. Assume straight-line depreciation is used to determine tax payments.
Round UP to the nearest unit.
Answer
units
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