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Question: Top Motor Corporation is projecting average revenue of $4.00 per mile and variable costs of $3.50 per mile for the year 2015. Fixed costs are budgeted at $2,000,000. The tax rate for Top Motor is 40%. Management wants to make an after-tax profit of $500,000.

Required: 1. Compute the contribution margin per mile and the contribution margin ratio.

2. Compute the break-even in miles and revenue taking into consideration projected aftertax profit and taxes.

3. Presently, Top Motor buys the liability insurance at a fixed premium of $10,000 per month. It is a part of thefixed costs. They have received a proposal from an agency to write the insurance at 10 cents per mile in lieu ofthe fixed premium. Calculate the new break-even in miles and revenue taking into consideration taxes andprofits.

4. Should they make the change? Discuss rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M93068570

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