Ajani Company has variable costs equal to 35% of sales. The company is considering a proposal that will increase sales by $25,000 and total fixed costs by $16,250. By what amount will net income increase?

Ajani Company has variable costs equal to 35% of sales. The company is considering a proposal that will increase sales by $25,000 and total fixed costs by $16,250. By what amount will net income increase?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 36P: Faldo Company produces a single product. The projected income statement for the coming year, based...

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What is the answer

Ajani Company has variable costs
equal to 35% of sales. The company
is considering a proposal that will
increase sales by $25,000 and total
fixed costs by $16,250. By what
amount will net income increase?

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Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
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