Thelma and Louise, Inc. (TAL) is suffering from the effects of increased local and global competition for its main product, a hair dryer that is sold in discount stores throughout the United States. The following table shows the results of TAL’s operations for 2019. # Units 10,000 Price per unit $ 74 Variable cost per unit $ 48 UnitsPer unitTotalSales 10,000 $ 74 $ 740,000Variable costs 10,000 $ 48 $ 480,000Contribution margin $ 260,000Fixed costs $ 174,000Operating profit/(loss) $ 86,000 Compute TAL’s breakeven point in both units and dollars and compute the contribution margin ratio.What would be the required sales, in units and in dollars, to generate a pretax profit of $100,000?Assume a combined income tax rate of 30%. What would be the required sales volume, in both units and in dollars, to generate an after-tax profit of $75,000?Refer to the original data. The manager believes that a $30,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the effect on the company’s operating profit or loss?Refer to the original data. The vice president in charge of sales feels that a 5% reduction in price in combination with a $40,000 increase in advertising will cause unit sales to increase by 40%. What effect would this strategy have on operating profit (loss)?Refer to the original data. During 2019, TAL saved $4.50 of unit variable costs per hair dryer by buying from a different manufacturer. However, the cost of changing the plant machinery to accommodate the new part cost an additional $50,000 in fixed cost per year. Was this a wise change? Why or why not?* I only need #4, $5, and #6 to be solved with full calculations. *Thank you

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Answered: Thelma and Louise, Inc. (TAL) is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Thelma and Louise, Inc. (TAL) is suffering from the effects of increased local and global competition for its main product, a hair dryer that is sold in discount stores throughout the United States. The following table shows the results of TAL’s operations for 2019.

# Units	10,000
Price per unit	$ 74
Variable cost per unit	$ 48

	Units	Per unit	Total
Sales	10,000	$ 74	$ 740,000
Variable costs	10,000	$ 48	$ 480,000
Contribution margin			$ 260,000
Fixed costs			$ 174,000
Operating profit/(loss)			$ 86,000

Compute TAL’s breakeven point in both units and dollars and compute the contribution margin ratio.
What would be the required sales, in units and in dollars, to generate a pretax profit of $100,000?
Assume a combined income tax rate of 30%. What would be the required sales volume, in both units and in dollars, to generate an after-tax profit of $75,000?
Refer to the original data. The manager believes that a $30,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the effect on the company’s operating profit or loss?
Refer to the original data. The vice president in charge of sales feels that a 5% reduction in price in combination with a $40,000 increase in advertising will cause unit sales to increase by 40%. What effect would this strategy have on operating profit (loss)?
Refer to the original data. During 2019, TAL saved $4.50 of unit variable costs per hair dryer by buying from a different manufacturer. However, the cost of changing the plant machinery to accommodate the new part cost an additional $50,000 in fixed cost per year. Was this a wise change? Why or why not?

* I only need #4, $5, and #6 to be solved with full calculations. *

Thank you

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