# Question

Millett, Inc., compiled the following information for this year:

Sales (10,000 units) ............................................................. $ 5,000,000

Variable costs ...................................................................... 1,000,000

Contribution margin ............................................................ $ 4,000,000

Fixed costs .......................................................................... 1,500,000

Before-tax profit ................................................................. $ 2,500,000

Tax (40%) ........................................................................... 1,000,000

After-tax profit .................................................................... $ 1,500,000

Required

A. What is the breakeven point in units? What is the breakeven point in dollars?

B. How many units must Millett, Inc., sell to earn a profit after taxes of $ 2,000,000?

C. Millett has learned that its total fixed costs will increase by $ 750,000 next year. If Millett increases its selling price per unit by 20 percent next year, how many units must it sell to earn the same before- tax profit as this year?

D. What factors should Millett, Inc.’s, management consider prior to increasing its selling price by 20 percent?

E. If Millett, Inc. can reduce its variable cost by 20 percent rather than increasing its selling price to offset the increase in fixed costs of $ 750,000, what is the new breakeven point?

F. If Millett, Inc. can reduce its variable cost by 20 percent to offset the increase in fixed costs of $ 750,000, should it also decrease its selling price? Why?

Sales (10,000 units) ............................................................. $ 5,000,000

Variable costs ...................................................................... 1,000,000

Contribution margin ............................................................ $ 4,000,000

Fixed costs .......................................................................... 1,500,000

Before-tax profit ................................................................. $ 2,500,000

Tax (40%) ........................................................................... 1,000,000

After-tax profit .................................................................... $ 1,500,000

Required

A. What is the breakeven point in units? What is the breakeven point in dollars?

B. How many units must Millett, Inc., sell to earn a profit after taxes of $ 2,000,000?

C. Millett has learned that its total fixed costs will increase by $ 750,000 next year. If Millett increases its selling price per unit by 20 percent next year, how many units must it sell to earn the same before- tax profit as this year?

D. What factors should Millett, Inc.’s, management consider prior to increasing its selling price by 20 percent?

E. If Millett, Inc. can reduce its variable cost by 20 percent rather than increasing its selling price to offset the increase in fixed costs of $ 750,000, what is the new breakeven point?

F. If Millett, Inc. can reduce its variable cost by 20 percent to offset the increase in fixed costs of $ 750,000, should it also decrease its selling price? Why?

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