Accent produces reading lamps and sells each for $18 to distributors. Accent's June income statement follows: Accent's income tax rate is 30%.
a. How much sales revenue must Accent generate to achieve a target profit after taxes of $25,000?
b. How much contribution margin will Accent generate when the company generates profit after taxes of $25,000?
c. What effect does an increase in the income tax rate from 30% to 32% have on the break-even point? Explain.
d. Accent's manager is planning to give each of its hourly production employees a 5% raise and plans to offset it with an increase in the selling price of each lamp by 5%. During June, the direct labor cost totaled $34,992. Provide the manager with insight into the effect of this increase on profitability.
e. Why do the two 5% changes in part d not offset each other, resulting in no change in the contribution margin?

Question

Accent produces reading lamps and sells each for $18 to distributors. Accent's June income statement follows:  Accent's income tax rate is 30%. 
a. How much sales revenue must Accent generate to achieve a target profit after taxes of $25,000?
b. How much contribution margin will Accent generate when the company generates profit after taxes of $25,000?
c. What effect does an increase in the income tax rate from 30% to 32% have on the break-even point? Explain.
d. Accent's manager is planning to give each of its hourly production employees a 5% raise and plans to offset it with an increase in the selling price of each lamp by 5%. During June, the direct labor cost totaled $34,992. Provide the manager with insight into the effect of this increase on profitability.
e. Why do the two 5% changes in part d not offset each other, resulting in no change in the contribution margin?

Quizplus · Accepted Answer

The Answer of Accent produces reading lamps and sells each for $18 to distributors. Accent's June income statement follows:  Accent's income tax rate is 30%. 
a. How much sales revenue must Accent generate to achieve a target profit after taxes of $25,000?
b. How much contribution margin will Accent generate when the company generates profit after taxes of $25,000?
c. What effect does an increase in the income tax rate from 30% to 32% have on the break-even point? Explain.
d. Accent's manager is planning to give each of its hourly production employees a 5% raise and plans to offset it with an increase in the selling price of each lamp by 5%. During June, the direct labor cost totaled $34,992. Provide the manager with insight into the effect of this increase on profitability.
e. Why do the two 5% changes in part d not offset each other, resulting in no change in the contribution margin?

Accent Produces Reading Lamps and Sells Each for $18 to Distributors