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cpagirl34
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Joined: 13 Feb 2010
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Posted: 13 Feb 2010 at 18:03 \| IP Logged

Hi Everyone,

Can someone please help me with this question for Wiley 2009, Testlet #3
                                          Total Cost         Unit Cost
Sales (40,000 units)             1,000,000        &nb sp; $25
Raw Materials        &nb sp;         &nb sp;    160,000          ;    4
Direct Labor         & nbsp;         & nbsp;     280,000          ;    7

Factory Overhead
Variable        &nbs p;         &nbs p;         &nbs p; 80,000              2
Fixed         & nbsp;         & nbsp;         & nbsp; 360,000

Selling and general expense
Variable        &nbs p;         &nbs p;         120,000          ;    3
Fixed         & nbsp;         & nbsp;         & nbsp; 225,000

12. How many unit does the company need to produce and sell to make a before-tax profit of 10% of sales?

The answer is : 90,000 units.

How did they get that?

Thanks for the help in advance!

mits07
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Joined: 22 Jan 2010
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Posted: 13 Feb 2010 at 19:23 \| IP Logged

Oh god, I tried to do this question. I thought I understood CM. But, I guess not. I took SP 25 - VC 16 = CM 9
Than I used the formula: Sales = VC + FC + 10% of sales
If Sales Price is $25 per unit then before tax is going to be 2.5 per unit ($25 * 10% = 2.5)
25X = 16X + 585,000 + 2.5X
25X = 18.5X + 585,000
6.5X = 585,000
X = 90,000 units

At first, I was doing 10% * 1,000,000 but that's wrong b/c in that case you are using 40,000 units to get to your before tax profit. Since they are asking for units, you can't use 40,000 units given to calculate before tax profit. This was very interesting question. I am not sure if I am correct, but this is what I got. Anyone please feel free to expand on this explanation. thanks.

ssham1976
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Joined: 12 Apr 2009
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Posted: 13 Feb 2010 at 21:38 \| IP Logged

this one is killing me also

fc+profit onsales/cm

is there a way to figure out the sales price?

all the prices given are cost

ssham1976
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Posted: 13 Feb 2010 at 22:11 \| IP Logged

If Sales Price is $25 per unit then before tax is going to be 2.5 per unit ($25 * 10% = 2.5)

cannot understand the logic

s= 16+14.63+.1s

.9s = 30.63

s = 34 sales price

vc = 16

cm=18

bep = 585000/18 = 32500 units

no idea on this

ssham1976
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Posted: 13 Feb 2010 at 22:15 \| IP Logged

mits07

after spending 2hs on this i came up with the same conclusion

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