CVP analysis, income taxes. Westover Motors is a small car dealership. On average, it sells a car for $32,000, which it purchases from the manufacturer for $28,000. Each month, Westover Motors pays $53,700 in rent and utilities and $69,000 for salespeople’s salaries. In addition to their salaries, salespeople are paid a commission of $400 for each car they sell. Westover Motors also spends $10,500 each month for local advertisements. Its tax rate is 40%.Required:How many cars must Westover Motors sell each month to break even?Westover Motors has a target monthly net income of $69,120. What is its target monthly operating income? How many cars must be sold each month to reach the target monthly net income of $69,120?

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Asked Dec 20, 2019
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CVP analysis, income taxes. Westover Motors is a small car dealership. On average, it sells a car for $32,000, which it purchases from the manufacturer for $28,000. Each month, Westover Motors pays $53,700 in rent and utilities and $69,000 for salespeople’s salaries. In addition to their salaries, salespeople are paid a commission of $400 for each car they sell. Westover Motors also spends $10,500 each month for local advertisements. Its tax rate is 40%.

Required:

  1. How many cars must Westover Motors sell each month to break even?
  2. Westover Motors has a target monthly net income of $69,120. What is its target monthly operating income? How many cars must be sold each month to reach the target monthly net income of $69,120?
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Expert Answer

Step 1

1.

 

Calculation of break-even point:

 

Resulting number...

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A B Amount (S) Particulars 1 =53700+69000+10500 |=28000+400 32000 2 Fixed cost 3 Variable cost 4 Sales price 5 Contribution margin per unit -B4-B3 6 Break even number of cars =B2/B5 A B Amount Particulars (S) 2 Fixed cost 133200 3 Variable cost 4 Sales price 5 Contribution margin per unit 6 Break even number of cars 28400 32000 3600 37

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