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Use the following information for questions 25 – 27: Zeigler. Inc. produces quality Chess sets for stiff academic office-hours competition. The company expects the following sales and expenses for the sear for its top of the line “Excellent Student” (ES) brand of silver-plated sets. Sales (400 sets) $ 300,000 Expected income Tax Rate: 30% Total Variable expenses $ 80,000 Total Fixed expenses $100,000 25. Set up a CM template, use the equation method, and determine how mans units (sets) must be sold to break-even and indicate your conclusion. 26. Using the “Equation Method”, what Sales dollar amount of Excellent Student series sets must be sold to earn a pre-tax profit of $120,000? and indicate your conclusion. 27. Using the “Equation Method”, what sales dollar amount of Excellent Student series sets must be sold to cam an after-tax profit of SI20.000? Show- all work and indicate your conclusion.
Expert Answer
Answer to Question No. 25:
As per Equation Method:
Profit= Sales – Variable Expenses- Fixed Expense
At Break Even Point, Profit is Zero
Selling Price per unit = 300,000 / 400 = $750
Variable Expenses per unit = 80,000 / 400 = $200
Profit= Sales – Variable Expenses- Fixed Expense
Let the units be sold be “X” units
$0 = ($750 * x) – ($200 * x) – $100,000
$0 = $550x – $100,000
x = 181.81 or 182 units
Answer to Question No. 26:
As per Equation Method:
Profit= Sales – Variable Expenses- Fixed Expense
Selling Price per unit = 300,000 / 400 = $750
Variable Expenses per unit = 80,000 / 400 = $200
Profit= Sales – Variable Expenses- Fixed Expense
Let the units be sold be “X” units
$120,000 = ($750 * x) – ($200 * x) – $100,000
$120,000 = $550x – $100,000
x = 400 units
Therefore, 400 units must be sold to earn a Pre-tax profit of $120,000.
Answer to Question No. 27:
As per Equation Method:
After- tax Profit= (Sales – Variable Expenses- Fixed Expense)* (1- Tax rate)
Selling Price per unit = 300,000 / 400 = $750
Variable Expenses per unit = 80,000 / 400 = $200
After- tax Profit= (Sales – Variable Expenses- Fixed Expense)* (1- Tax rate)
Let the units be sold be “X” units
$120,000 = [($750 * x) – ($200 * x) – $100,000] * (1 – 0.30)
$120,000 = ($550x – $100,000) * 0.70
$120,000 = $385x – $70,000
$190,000 = $385x
x = 493.51 unit or 494 units
Therefore, 494 units must be sold to earn after-tax profit of $120,000.
