Sandford, Inc. makes three types of products: ties, blouses, and shirts. The following selling prices and variable
Question:
In addition, ï¬xed costs are as follows:
Fixed overhead.......................................... $920,000
Fixed selling expenses............................... 150,000
Fixed administrative expenses........................ 174,100
The company expects to have the following sales mix: two ties, three blouses, and one shirt.
Required:
(a) Which product is the most proï¬table? Which is the least proï¬table? Does this make sense to you? Explain.
(b) What is the expected break-even point for 2009?
(c) How many units of each product are expected to be sold at the break-even point?
(d) Assume that the company desires a pretax proï¬t of $1,010,360.Howmanyunitsofeach product would need to be sold to generate this proï¬t level? How much revenue in total would be required?
(e) Sandford, Inc. wants to earn $806,000 after-tax, with a tax rate of 35 percent. Use the contribution margin ratio to determine the revenue needed (round to the nearest dollar).
(f) If Sandford, Inc. earns the revenue determined in part (d), what is the companys margin of safety in dollars and as a percentage?
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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