Question - Multiple Product Planning with Taxes
In the year 2008, Wiggins Processing Company had the following contribution income statement:
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WIGGINS PROCESSING COMPANY Contribution Income Statement For the Year 2008
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Sales
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$1,000,000
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Variable costs
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Cost of goods sold
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$460,000
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Selling and administrative
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200,000
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(660,000)
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Contribution margin
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340,000
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Fixed Costs
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Factory overhead
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192,000
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Selling and administrative
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80,000
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(272,000)
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Before-tax profit
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68,000
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Income taxes (38%)
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(25,840)
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After-tax profit
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$42,160
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HINT: Round the contribution margin ratio to two decimal places for your calculations below.
(a) Determine the annual break-even point in sales dollars.
(b) Determine the annual margin of safety in sales dollars.
(c) What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $34,000?
(d) With the current cost structure, including fixed costs of $272,000, what dollar sales volume is required to provide an after-tax net income of $160,000?
(e) Prepare an abbreviated contribution income statement to verify that the solution to part (d) will provide the desired after-tax income.