Laraby Company produces a single product. It sold 25,000 units last year with the following results.

Sales .........$625,000

Variable costs ...... 375,000

Fixed costs ........1, 50,000

Income before taxes .. 100,000

Income taxes (45%) .. 45,000

After-tax profit .... $55,000

In an attempt to improve its product, Laraby’s managers are considering replacing a component part that costs $2.50 with a new and better part costing $4.50 per unit during the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $18,000 and have a useful life of 6 years with no salvage value. The company uses straight-line depreciation on all plant assets.

REQUIRED

A. What was Laraby Company’s breakeven point in units last year?

B. How many units of product would Laraby Company have had to sell in the past year to earn $77,000 in after-tax profit?

C. If Laraby Company holds the sales price constant and makes the suggested changes, how many units of product must be sold in the coming year to break even?

D. If Laraby Company holds the sales price constant and makes the suggested changes, how many units of product will the company have to sell to make the same after-tax profit as last year?

E. If Laraby Company wishes to maintain the same contribution margin
ratio, what selling price per unit of product must it charge next year to cover the increased materials costs?

Answer rating: 100% (QA)

Solution A What was Laraby Companys breakeven point in units last year Contribution per unit Sales v... View the full answer