Gift4U produces one single product, a small reading tablet, and sells it at $120 per unit. Its current annual sales are $240,000. Its annual fixed costs include factory rent, $43,400; depreciation expense; equipment, $12,000; utilities, $22,000; insurance, $8,400. Its variable costs include materials, $36 per unit, and direct labour, $48 per unit. Gift4U's income tax rate is 20%.
REQUIRED
A. What is the contribution margin per unit?
B. What is the contribution margin ratio?
C. How many units must Gift4U sell to break even?
D. If Gift4U would like to earn a profi t after tax of $12,000, what should the sales be? At this sales level, what is the degree of operating leverage? What is the margin of safety in unit?
E. If Gift4U would like to earn a profi t after tax that is 8% of sales, what should the sales be? How many units does Gift4U need to increase from the current sales level?