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Problem D3-32 W Promotions sells T-shirts imprinted with high school names and logos. Last year the shirts sold for $18.00 each, and variable costs were $5.40 per shirt. At this cost structure, the breakeven point was 20,000 shirts. However, the company actually earned $15,120 in net income. This year, the company is increasing its price to $21.00 per shirt. Variable costs per shirt will increase by one-third, and fixed expenses will increase by $30 900 The tax rate will remain at 40% Prepare a contribution format income statement for last year. (Round per unit computations to 2 decimal places, e.g. 0.38.) Contribution Income Statement Total Per unit
Expert Answer
Solution:
Per unit
| Sale price | $18 |
| Variable cost | $5.40 |
| Contribution per unit | $12.60 |
| Less fixed cost | |
| Profit | |
| Less tax(40%) | |
| Net income |
Break even point(units)=fixed cost/contribution per unit
20000 unit=fixed cost/$12.60
Fixed cost=$252,000
Tax=($15,120/.60)×.40
=$10,080
Profit=net income+tax
=15,120+10,080
=$25,200
Contribution=Profit+fixed cost
=$25,200+252,000
=$277,200
Contribution per unit=contribution/unit sold
$12.60=$277,200/unit sold
Unit sold=22,000 units
1. Contribution format income statement:
| Total | per unit | |
| Sales(22000 units) | $396,000 | $18 |
| Less variable cost | $118,800 | $5.40 |
| Contribution | $277,200 | $12.60 |
| Less fixed cost | $252,000 | |
| Profit | $25,200 | |
| Less tax(40%) | $10,080 | |
| Net income | $15,120 | |
2.
New sales price per unit=$21
New variable cost ($5.40+(5.40×1/3)]=$7.2
New contribution margin per unit=$13.8
3. This year break even:
=New fixed cost/new contribution margin per unit
=($252,000+30,900)/$13.80
=20,500 units
4.
Desired before tax profit=$28980/.60
=$48,300
Break even units to get desired profit=( new fixed cost+desired profit)/contribution margin per unit
=(252000+30,900+48,300)/$13.80
=24,000 units
