Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 3, Problem 61P
Extensions of the CVP Model—Taxes
Toys 4 Us sells miniature drones for hobbyists for a price of $1,200. The variable cost for each drone is $750. The fixed costs associated with the drone amount to $900,000 per year.
Required
- a. Compute the break-even point in units for the drone.
- b. Assuming that the tax rate is 40 percent and the desired profit level is $135,000 after tax, compute the required unit sales level.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Bonaventure Manufacturing expects to earn P210,000 next year after taxes. Sales will be P4million. The firm manufactures a combined bookshelf and desk unit used extensively in university dormitories. These units sell for P200 each and a have variable cost per unit of P150. Bonaventure experiences a 30% tax rate.a. Determine the firm’s fixed costs that are expected next year. (4 marks)b. Calculate the firm’s break-even point in both units and pulas.
UrTurn sells its products at P80 per unit with the unit variable cost of P55. Its fixed cost is P81,000. How many units must be sold to achieve the following (tax rate is at 40%)
Suppose that its target pre-tax income is P50,000. The company is presently selling 5,000 units. To increase sales, the management is considering an advertising program that will cost P13,000. The management estimates that this will increase sales 500 units. What should be the minimum increase in sales (in units) so that the company could really consider advertising the product.
UrTurn sells its products at P80 per unit with the unit variable cost of P55. Its fixed cost is P81,000. How many units must be sold to achieve the following (tax rate is at 40%)
1. What is the breakeven point in units?
2. What is the break even point in Peso amount?
3. Break even point in peso for a minimum of P5,000 required after tax income.
4. Minimum after tax income of 15% of Sales
Chapter 3 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 3 - Write out the profit equation and describe each...Ch. 3 - What are the components of total costs in the...Ch. 3 - How does the total contribution margin differ from...Ch. 3 - Compare cost-volume-profit (CVP) analysis with...Ch. 3 - Fixed costs are often defined as fixed over the...Ch. 3 - Prob. 6RQCh. 3 - What is the margin of safety? Why is this...Ch. 3 - Prob. 8RQCh. 3 - Write out the equation for the target volume (in...Ch. 3 - How do income taxes affect the break-even...
Ch. 3 - Why is it common to assume a fixed sales mix...Ch. 3 - What are some important assumptions commonly made...Ch. 3 - Prob. 13CADQCh. 3 - Prob. 14CADQCh. 3 - The typical cost-volume-profit graph assumes that...Ch. 3 - The assumptions of CVP analysis are so simplistic...Ch. 3 - Prob. 17CADQCh. 3 - Consider a class in a business school where volume...Ch. 3 - Prob. 19CADQCh. 3 - Prob. 20CADQCh. 3 - Consider the Business Application,...Ch. 3 - Consider the Business Application,...Ch. 3 - Prob. 23CADQCh. 3 - Profit Equation Components Identify each of the...Ch. 3 - Profit Equation Components Identify the letter of...Ch. 3 - Basic Decision Analysis Using CVP Anus Amusement...Ch. 3 - Basic CVP Analysis The manager of Dukeys Shoe...Ch. 3 - CVP AnalysisEthical Issues Mark Ting desperately...Ch. 3 - Basic Decision Analysis Using CVP Derby Phones is...Ch. 3 - Prob. 30ECh. 3 - Basic Decision Analysis Using CVP Warner Clothing...Ch. 3 - Basic Decision Analysis Using CVP Refer to the...Ch. 3 - Prob. 33ECh. 3 - Prob. 34ECh. 3 - Analysis of Cost Structure Spring Companys cost...Ch. 3 - CVP and Margin of Safety Bristol Car Service...Ch. 3 - CVP and Margin of Safety Caseys Cases sells cell...Ch. 3 - Prob. 38ECh. 3 - Prob. 39ECh. 3 - Refer to the data for Derby Phones in Exercise...Ch. 3 - Refer to the data for Warner Clothing in Exercise...Ch. 3 - CVP with Income Taxes Hunter Sons sells a single...Ch. 3 - CVP with Income Taxes Hammerhead Charters runs...Ch. 3 - Prob. 44ECh. 3 - Prob. 45ECh. 3 - Prob. 46ECh. 3 - Prob. 47ECh. 3 - CVP Analysis and Price Changes Argentina Partners...Ch. 3 - Prob. 49PCh. 3 - CVP AnalysisMissing Data Breed Products has...Ch. 3 - Prob. 51PCh. 3 - Prob. 52PCh. 3 - CVP AnalysisSensitivity Analysis (spreadsheet...Ch. 3 - Prob. 54PCh. 3 - Prob. 55PCh. 3 - Extensions of the CVP ModelSemifixed (Step) Costs...Ch. 3 - Prob. 57PCh. 3 - Extensions of the CVP ModelTaxes Odd Wallow Drinks...Ch. 3 - Prob. 59PCh. 3 - Prob. 60PCh. 3 - Extensions of the CVP ModelTaxes Toys 4 Us sells...Ch. 3 - Extensions of the CVP AnalysisTaxes Eagle Company...Ch. 3 - Extensions of the CVP ModelMultiple Products...Ch. 3 - Extensions of the CVP ModelMultiple Products...Ch. 3 - Prob. 65PCh. 3 - Prob. 66PCh. 3 - Prob. 67PCh. 3 - Prob. 68PCh. 3 - Extensions of the CVP ModelMultiple Products and...Ch. 3 - Extensions of the CVP ModelTaxes With Graduated...Ch. 3 - Prob. 71PCh. 3 - Financial Modeling Three entrepreneurs were...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)arrow_forwardDelta Co. sells a product for $150 per unit. The variable cost per unit is $90 and fixed costs are $15,250. Delta Co.s tax rate is 36% and the company wants to earn $44,000 after taxes. What would be Deltas desired pre-tax income? What would be break-even point in units to reach the income goal of $44,000 after taxes? What would be break-even point in sales dollars to reach the income goal of $44000 after taxes? Create a contribution margin income statement to show that the break-even point calculated in B, generates the desired after-tax income.arrow_forwardGelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs per gas grill are 225, and the average price per gas grill is 600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelbart Company sells 46,775 gas grills in a year, what is the operating income? 3. If Gelbart Companys variable costs increase to 240 per grill while the price and fixed costs remain unchanged, what is the new break-even point?arrow_forward
- Olivian Company wants to earn 420,000 in net (after-tax) income next year. Its product is priced at 275 per unit. Product costs include: Variable selling expense is 14 per unit; fixed selling and administrative expense totals 290,000. Olivian has a tax rate of 40 percent. Required: 1. Calculate the before-tax profit needed to achieve an after-tax target of 420,000. 2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. (Round to the nearest unit.) 3. Prepare an income statement for Olivian Company for the coming year based on the number of units computed in Requirement 2. 4. What if Olivian had a 35 percent tax rate? Would the units sold to reach a 420,000 target net income be higher or lower than the units calculated in Requirement 3? Calculate the number of units needed at the new tax rate. (Round dollar amounts to the nearest dollar and unit amounts to the nearest unit.)arrow_forwardBonaventure Manufacturing expects to earn P210,000 next year after taxes. Sales will beP4million. The firm manufactures a combined bookshelf and desk unit used extensively inuniversity dormitories. These units sell for P200 each and a have variable cost per unit of P150.Bonaventure experiences a 30% tax rate.a. Determine the firm’s fixed costs that are expected next year.b. Calculate the firm’s break-even point in both units and pulas.arrow_forwardCrystal Images Ltd manufactures premium high definition televisions. The firm’s fixed costs are$4,000,000 per year. The variable cost of each TV is $2,000, and the TVs are sold for $3,000 each. Thecompany sold 5,000 TVs during the previous year. (In the following requirements, ignore income taxes)Required:Treat each of the requirements as independent situations:a) Calculate the break-even point in units. b) What will the new break-even point be if fixed costs increase by 10 per cent? c) What was the company’s net profit for the previous year? d) The sales manager believes that a reduction in the sales price to $2,500 will result in orders for1,200 more TVs each year. What will the break-even point be if the price is changed?arrow_forward
- Al-Naseem Company fixed costs are OMR 120,000 per year. The variable cost of each unit is OMR 6, and sold for OMR 22 per unit. The company sold 9,000 units during the prior year. (Ignore income taxes)Required:The sales manager believes that a reduction in the sales price to OMR 20 will result in orders for 200 more units each year. calculate the profit if the company accept this proposal Answer 3arrow_forwardLucid Images Ltd manufactures premium high definition televisions. The firm’s fixed costs are$4,000,000 per year. The variable cost of each TV is $2,000, and the TVs are sold for $3,000 each. Thecompany sold 5,000 TVs during the previous year. (In the following requirements, ignore income taxes)Required:Treat each of the requirements as independent situations:a) Calculate the break-even point in units.b) What will the new break-even point be if fixed costs increase by 10 per cent? c) What was the company’s net profit for the previous year? (4 marks)d) The sales manager believes that a reduction in the sales price to $2,500 will result in orders for 1,200 more TVs each year. What will the break-even point be if the price is changed?arrow_forwardLucid Images Ltd manufactures premium high definition televisions. The firm’s fixed costs are$4,000,000 per year. The variable cost of each TV is $2,000, and the TVs are sold for $3,000 each. Thecompany sold 5,000 TVs during the previous year. (In the following requirements, ignore income taxes)Required:Treat each of the requirements as independent situations:a) Calculate the break-even point in units. b) What will the new break-even point be if fixed costs increase?c) What was the company’s net profit for the previous year? d) The sales manager believes that a reduction in the sales price to $2,500 will result in orders for1,200 more TVs each year. What will the break-even point be if the price is changed?arrow_forward
- Lucid Images Ltd manufactures premium high definition televisions. The firm’s fixed costs are$4,000,000 per year. The variable cost of each TV is $2,000, and the TVs are sold for $3,000 each. Thecompany sold 5,000 TVs during the previous year. (In the following requirements, ignore income taxes)Required:Treat each of the requirements as independent situations:a) Calculate the break-even point in units. b) What will the new break-even point be if fixed costs increase by 10 percent? c) What was the company’s net profit for the previous year? d) The sales manager believes that a reduction in the sales price to $2,500 will result in orders for1,200 more TVs each year. What will the break-even point be if the price is changed?arrow_forwardYou are entering the widget business. It costs$500,000, payable in year 1, to develop a prototype.This cost can be depreciated on a straight-line basisduring years 1–5. Each widget sells for $40 and incursa variable cost of $20. During year 1, the market sizeis 100,000, and the market is growing at 10% peryear. You believe you will attain a 30% market share.Profits are taxed at 40%, but there are no taxes onnegative profits.a. Given your other assumptions, what market share isneeded to ensure a total free cash flow (FCF) of $0over years 1 to 5? (Note: FCF during a year equalsafter-tax profits plus depreciation minus fixedcosts, if any.)b. Explain how an increase in market share changesprofit.c. Explain how an increase in market size growthchanges profit.d. Use Excel’s auditing tool to show how the marketgrowth assumption influences your spreadsheet.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Cost-Volume-Profit (CVP) Analysis and Break-Even Analysis Step-by-Step, by Mike Werner; Author: Accounting Step by Step;https://www.youtube.com/watch?v=D0MOfse9OWk;License: Standard Youtube License