Question:
Sport Caps Co. manufactures and sells caps for different sporting events. The fixed costs of operating the company are $150,000 per month, and the variable costs for caps are $5 per unit. The caps are sold for $8 per unit. The fixed costs provide a production capacity of up to 100,000 caps per month.
Required
1. Use the formulas in the chapter to compute the following:
a. Contribution margin per cap.
b. Break-even point in terms of the number of caps produced and sold.
c. Amount of net income at 30,000 caps sold per month (ignore taxes).
d. Amount of net income at 85,000 caps sold per month (ignore taxes).
e. Number of caps to be produced and sold to provide $45,000 of after-tax income, assuming an income tax rate of 25%.
2. Draw a CVP chart for the company, showing cap output on the horizontal axis. Identify (a) the breakeven point and (b) the amount of pretax income when the level of cap production is 70,000. (Omit the fixed cost line.)
3. Use the formulas in the chapter to compute the
a. Contribution margin ratio.
b. Break-even point in terms of sales dollars.
c. Amount of net income at $250,000 of sales per month (ignore taxes).
d. Amount of net income at $600,000 of sales per month (ignore taxes).
e. Dollars of sales needed to provide $45,000 of after-tax income, assuming an income tax rate of 25%.