The European Division of Worldwide Reference Corporation produces a pocket dictionary containing popular phrases in six European languages. Annual budget data for the coming year follow. Projected sales are 100,000 books. 

Required: 

1. Calculate the break-even point in units and in sales dollars. 

2. If the European Division is subject to an income-tax rate of 25 percent, compute the number of units the company would have to sell to earn an after-tax profit of $90,000. 

3. If fixed costs increased $31,500 with no other cost or revenue factor changing, compute the firm’s break-even sales in units. 

4. Focusing on operating profit (i.e., before-tax profit), prepare a profit-volume graph for the European Division. 

5. Due to a possible change in the political situation in the country in which the European Division is located, management believes the country’s government may reduce the tax rate to 20 percent. Assuming all other data as in the original problem, how many pocket dictionaries must be sold to earn $90,000 after taxes?

Transcribed Image Text:

Sales $1,000,000 Costs: Fixed Variable Direct material $ -0- $300,000 Direct labor -0- 200,000 Manufacturing overhead 100,000 150,000 Selling and administrative .. 110,000 50,000 Total costs $210,000 $700,000 910,000 Budgeted operating income . $ 90,000