Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 30

Break-Even, After-Tax Target Income, Margin of Safety, Operating Leverage
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows:

Required:
1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit?
2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are $200,000 greater than expected. What would the total profit be?
3. Compute the margin of safety in sales revenue.
4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected.
5. How many units must be sold to earn a profit equal to 10 percent of sales?
6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of $180,000?