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

Contribution margin  360,000

Fixed Costs

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?

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

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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