Briefly state the reasons why a company would not wish to distribute all its profits to its shareholders.
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Answer:
<u>Using equation method we have,</u>
Sales - variable cost = Fixed Cost
Let number of units be X, at break even then,
$150 X - ($60 + $18) X = ($480,000 + $240,000)
$150 X - $78 X = $720,000
$72 X = $720,000
<u>X = $720,000/$72 = 10,000 units.</u>
<u>Using contribution income statement</u>
Contribution margin per unit approach = Selling price - Variable cost = Contribution = $150 - $60 - $18 = $72 per unit
Total fixed cost = Fixed Manufacturing cost + Fixed Selling & Administrative
= $480,000 + $240,000 = $720,000
<u>Break Even Point = </u>
<u>= </u>
<u></u>
<u>Contribution margin Income Statement:</u>
Sales value = $150 10,000 = $1,500,000
Less: Variable Cost
Manufacturing = $60 10,000 = ($600,000)
Selling Expense = $18 10,000 = ($180,000)
Contribution Margin = $720,000
Less: Fixed Cost
Fixed Manufacturing Cost = ($480,000)
Fixed Selling Expense = ($240,000)
Profit = $0