Q1) Wilson is wholesale distributor of widgets. Company services groceries, convenience stores, and superstores like Wal-Mart. Small but gradual growth has been achieved over past few years where as widget prices have been increasing. Company is formulating its plans for coming fiscal year. Listed below are data used to project the present years after tax net income of $264,960.
Average selling price: $9.60 per case
Average variable costs:
Widget production: $4.80 per case
Selling expense: $.96 per case
Total: $5.76 per case
Annual fixed costs: $1,056,000
Expected annual sales volume: 390,000 cases
Tax rate: 40%
Manufacturers of widgets have proclaimed that they will rise prices of their products on average 15% in coming year due to increases in raw materials and labor costs. All other variable costs change 15% as well. Wilson expects all other costs will stay at same rates or levels as the present year. These changes haven't been entered into the information presented above.
Answer the following:
a) Compute Wilson's break-even point in cases of widgets for present year?
b) What selling price per case should Wilson charge to cover 15% increase in variable production costs (the 15% increase comprises all variable costs associated with this problem) and still sustain present contribution margin percentage?
c) Determine the number of units which Wilson should achieve in coming year to sustain the same net income after taxes as projected for present year if selling price of widgets remains at $9.60 per case and variable production costs of widgets increase 15%?