The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50.Variable costs per unit are $3.86,while total fixed costs amount to $572,200.The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000.The total sales needed to break even are:
A)$1,175,886
B)$1,310,712
C)$870,780
D)$861,304

Question

Quizplus · Accepted Answer

To calculate the break-even point in sales dollars, we use the formula: Total Fixed Costs / (1 - Variable Cost per Unit / Price per Unit). Here, Total Fixed Costs = $572,200, Variable Cost per Unit = $3.86, and Price per Unit = $11.50. Plugging these values into the formula gives us the break-even sales in dollars. To achieve the desired after-tax profit, we adjust the formula to include the target profit adjusted for taxes: (Total Fixed Costs + Desired After-Tax Profit / (1 - Tax Rate)) / (1 - Variable Cost per Unit / Price per Unit). However, the question only asks for the break-even sales, not the sales needed to achieve the after-tax profit. Therefore, we calculate only the break-even point: $572,200 / (1 - $3.86 / $11.50) = $861,304.

The Foggy Daze Company Sells a "One Size Fits All