Washington Co. plans to produce and sell chairs. The projected data for producing a chair are as follows:
Budgeted sales (in units) 2,000
Selling price $50
Variable costs $20
Total fixed costs $40,000
Income tax rate 30%
Desired profit after tax $14,000
Required:
a) What is the contribution margin for each chair?
b) How many chairs (per year) would it have to produce in order to break even?
c) How many sales revenue (per year) would it have in order to break even?
d) To earn an annual after-tax profit of $14,000, how many chairs would it have to sell/produce?
e) Calculate Washington Co.'s margin of safety (MOS) in units if 2,000 units are sold as budgeted. Define what is meant by the MOS.