Part A required us to find Break-even point for the company which is calculated as $1 781 758,96 using variable cost ratio and fixed costs values. This digit are calculated from statistical data. The fixed costs we found as $315 576,92 don’t look very precise to me since we can see that the costs for Depreciation and Administrative costs look to be fixed, and in sum are equal to $330’000, a number which is greater than what we’ve calculated as fixed cost using variable cost ratio.
Part B asked us to find the dollar sales volume required to earn $480’000 after tax profit. The answer was calculated as $6 197 649,57. The calculation look correct and correlates to the other data.
Part C gives us targeted sales for 2014 and requires us to calculate income statement for 2014. 2014 Sales $ 6 000 000,00 Expenses Variable expenses $ 4 937 307,69 Fixed expenses $ 315 576,92 Before-tax profit $ 747 115,38 Income taxes (40%) $ -298 846,15 After-tax profit $ 448 269,23
As we can see from the table above calculations looks reasonable and with high probability are correct. However, one must keep in mind that these calculations were based on dollar sales volumes and costs from previous years exclusively. Which means that no separate cost drivers were analyzed at all. One may use fixed costs as $330’000 as calculated earlier and find that the actual After-tax income will decrease to $439 615,38 and the new income