In the year 2008, Wiggins Processing Company had the following

In the year 2008, Wiggins Processing Company had the following contribution income statement:

WIGGINS PROCESSING COMPANY

Contribution Statement for 2008

Sales $1,000,000

Variable costs

Cost of goods sold $440,000

Selling and administrative 200,000 (640,000)

Contribution margin  360,000

Fixed Costs

Factory overhead 154,000

Selling and administrative 80,000 (234,000)

Before-tax profit  126,000

Income taxes (39%)  (49,140)

After-tax profit  $76,860

Round the contribution margin ratio to two decimal places for your calculations below.

(a) Determine the annual break-even point in sales dollars.

(b) Determine the annual margin of safety in sales dollars.

(c) What is the break-even point in sales dollars if management makes a decision that increases fixed costs by $72,000?

(d) With the current cost structure, including fixed costs of $234,000, what dollar sales volume is required to provide an after-tax net income of $270,000?

Do not round until your final answer. Round your answer to the nearest dollar.

(e) Prepare the abbreviated contribution income statement to verify that the solution to part (d) will provide the desired after-tax income.

Round your answers to the nearest dollar. Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.

WIGGINS PROCESSING COMPANY

Income Statement

For the Year 2008

Sales ?

Variable costs?

Contribution margin?

Fixed costs?

Net income before taxes?

Income taxes (39%)

Net income after taxes?

Here’s the SOLUTION

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