W Promotions sells T-shirts imprinted with high school names and logos. Last year the shirts sold for $20.00 each, and variable costs were $8.50 per shirt. At this cost structure, the breakeven point was 24,600 shirts. However, the company actually earned $24,840 in net income. This year, the company is increasing its price to $22 per shirt. Variable costs per shirt will increase by 20%, and fixed expenses will increase by $30,980. The tax rate will remain at 40%.

W Promotions sells T-shirts imprinted with high school names and logos. Last year the shirts sold for $20.00 each, and variable costs were $8.50 per shirt. At this cost structure, the breakeven point was 24,600 shirts. However, the company actually earned $24,840 in net income. This year, the company is increasing its price to $22 per shirt. Variable costs per shirt will increase by 20%, and fixed expenses will increase by $30,980. The tax rate will remain at 40%.

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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Question

Calculate the contribution margin per unit for this year. (Round Contribution margin per unit to 2 decimal places, e.g. 0.38.)

Contribution margin per unit

W Promotions sells T-shirts imprinted with high school names and logos. Last year the shirts sold for $20.00 each, and
variable costs were $8.50 per shirt. At this cost structure, the breakeven point was 24,600 shirts. However, the company
actually earned $24,840 in net income.
This year, the company is increasing its price to $22 per shirt. Variable costs per shirt will increase by 20%, and fixed
expenses will increase by $30,980. The tax rate will remain at 40%.
(a)
Your answer is correct.
Prepare a contribution format income statement for last year. (Round per unit computations to 2 decimal places, e.g.
0.38.)
W Promotions
Contribution Income Statement
Total
Per unit
Sales
$
564000
20
Variable Expenses
(239700)
(8.50)
Contribution Margin
324300
11.50
Fixed Expenses
282900
Operating Income
41400
Income Tax
(16560)
Net Income/(Loss)
24840

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