Question

Study Appendix 2B. Decca Company is a wholesaler of compact discs. The projected after-tax net income for the current year is $90,000, based on a sales volume of 170,000 CDs. Decca has been selling the CDs at $15 each. The variable costs consist of the $8 unit purchase price and a handling cost of $4 per unit. Decca’s annual fixed costs are $714,000, and the company is subject to a 40% income tax rate. Management is planning for the coming year when it expects that the unit purchase price will increase 25%.
1. Compute Decca Company’s break-even point for the current year.
2. An increase of 15% in projected unit sales volume for the current year would result in an increased after-tax income for the current year of how much?
3. Compute the volume of sales in dollars that Decca Company must achieve in the coming year to maintain the same after-tax net income as projected for the current year if unit selling price remains at $15.
4. To cover a 25% increase in the unit purchase price for the coming year and still maintain the current contribution-margin ratio, Decca Company must establish a selling price per unit for the coming year of how much?



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  • CreatedNovember 19, 2014
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