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Break-Even and Target Profit Analysis

Memtech Company is the exclusive distributor of a high-speed computer memory chip. The product sells for $50 per unit and has a CM ratio of 30%. The company's fixed expenses are $240,000 per year.

Required:

1. What are the variable expenses per unit?

2. Using the equation method:

a. What is the break-even point in units and in sales dollars?

b. What sales level in units and in sales dollars is required to earn an operating income of $75,000?

c. Assume that through negotiation with the manufacturer, Memtech Company is able to reduce its variable expenses by $5 per unit. What is the company's new break-even point in units and in sales dollars?

3. Repeat (2) above using the formula method.

4. Referring to the original data, what sales level in dollars is required to earn an annual profit of $75,000 after taxes if the company's tax rate is 20%?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91626001

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