Sea-Jet Companies produces jet skis. Variable direct costs total $ 2,000 per unit. Variable indirect costs total $ 600 per unit. Fixed overhead costs total $ 700,000. The company pays sellers a commission of $ 400 per unit sold. Total fixed costs for the period add up to $ 200,000. Each watercraft sells for $ 5,000. The company taxes its earnings at 25%. 6. How many units do you have to sell to achieve a net income of $ 202,500.
Sea-Jet Companies produces jet skis. Variable direct costs total $ 2,000 per unit. Variable indirect costs total $ 600 per unit. Fixed
6. How many units do you have to sell to achieve a net income of $ 202,500.
6)
Sales - Variable cost = Contribution
Here,
selling price = $5000 per unit
Variable cost per unit = $2,000(direct cost)+$600(Indirect cost)+$400(commission) = $3,000
Therefore contribution per unit = $5,000 - $3,000 = $2,000
Contribution - Fixed cost = Profit before tax
Profit before tax - Taxes = Net income
Required Net income = $202,500
Given tax rate = 25%
Therefore required profit before tax = Net income/(1-tax rate) = 202,500 / (1-0.25) = $270,000
Required Contribution = Profit before tax + Fixed cost
Required Contribution = $270,000 + $200,000
Required Contribution = $470,000
Present contribution per unit = $2,000
Number of units to be sold to earn contribution of $470,000 = $470,000 / $2,000 = 235 units
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