Multiple Product Planning with Taxes
In the year 2017, Pyramid Consulting had the following contribution income statement:
PYRAMID CONSULTING
Contribution Income Statement
For the Year 2017
Sales revenue $ 1,300,000
Variable costs Cost of services $ 420,000
Selling and administrative 200,000 (620,000)
Contribution margin 680,000
Fixed Costs -selling and administrative (285,000)
Before-tax profit 395,000
Income taxes (36%) (142,200)
After-tax profit $ 252,800
(a) Determine the annual break-even point in sales revenue. Round contribution margin ratio to two decimal places for your calculation. Round final answer to nearest dollar.
(b) Determine the annual margin of safety in sales revenue. Use rounded answer from above for calculation.
(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $57,000? Use rounded contribution margin ratio (2 decimal places) for your calculation.
(d) With the current cost structure, including fixed costs of $285,000, what dollar sales revenue is required to provide an after-tax net income of $200,000?Use rounded contribution margin (2 decimal places) for calculation. Round your answer to the nearest dollar.
(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.
Use rounded contribution margin (2 decimal places) for variable cost/contribution margin computations.