Question

Hunter & Sons sells a single model of meat smoker for use in the home. The smokers have the following price and cost characteristics. Sales price $ 79 per smoker Variable costs 40 per smoker Fixed costs 308,100 per month Hunter & Sons is subject to an income tax rate of 40 percent. Required: a. How many smokers must Hunter & Sons sell every month to break even? b. How many smokers must Hunter & Sons sell to earn a monthly operating profit of $51,480 after taxes?

Answer 1

Answer:

a. 7,900

b. 10,100

Explanation:

As for the provided information,

We know at break even point taxes shall be = 0 as there are no profits and no losses.

a. At break even: = $\frac{Fixed\ Cost}{Contribution}$

Fixed Cost = $308,100

Contribution per unit = Selling price - Variable cost = $79 - $40 = $39

Therefore, break even units = $\frac{308,100}{39} = 7,900 smokers$

b. In case the company wants a profit of $51,480 after tax @ 40% then,

Earnings before taxes = $\frac{51,480}{1 - 0.4}$ = $85,800

Therefore, number of units = $\frac{Fixed\ Cost + Profit\ before\ tax}{Contribution\ per\ unit}$

= $\frac{308,100 + 85,800}{39}$ = 10,100