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    3383355

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    Pulkit Mahajan
    Madden Company projected its income statement for next year which included $8 million in sales from 160,000 units, $2 million in variable costs, $3 million in fixed costs, and $3 million in pre-tax profit. To calculate the break-even point, fixed costs are divided by the contribution margin per unit of $37.50 which is 80,000 units. For Madden to achieve $4.5 million in pre-tax profit, sales would need to be $10 million based on its 75% contribution margin ratio. For Madden to earn a 10% after-tax return on its $36 million in net assets, revenue would need to be $8.8 million.

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    3383355

    Uploaded by

    Pulkit Mahajan
    121 views3 pages
    Madden Company projected its income statement for next year which included $8 million in sales from 160,000 units, $2 million in variable costs, $3 million in fixed costs, and $3 million in pre-tax profit. To calculate the break-even point, fixed costs are divided by the contribution margin per unit of $37.50 which is 80,000 units. For Madden to achieve $4.5 million in pre-tax profit, sales would need to be $10 million based on its 75% contribution margin ratio. For Madden to earn a 10% after-tax return on its $36 million in net assets, revenue would need to be $8.8 million.

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    Madden Company projected its income statement for next year which included $8 million in sales from 160,000 units, $2 million in variable costs, $3 million in fixed costs, and $3 million in pre-tax profit. To calculate the break-even point, fixed costs are divided by the contribution margin per unit of $37.50 which is 80,000 units. For Madden to achieve $4.5 million in pre-tax profit, sales would need to be $10 million based on its 75% contribution margin ratio. For Madden to earn a 10% after-tax return on its $36 million in net assets, revenue would need to be $8.8 million.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    121 views3 pages

    3383355

    Uploaded by

    Pulkit Mahajan
    Madden Company projected its income statement for next year which included $8 million in sales from 160,000 units, $2 million in variable costs, $3 million in fixed costs, and $3 million in pre-tax profit. To calculate the break-even point, fixed costs are divided by the contribution margin per unit of $37.50 which is 80,000 units. For Madden to achieve $4.5 million in pre-tax profit, sales would need to be $10 million based on its 75% contribution margin ratio. For Madden to earn a 10% after-tax return on its $36 million in net assets, revenue would need to be $8.8 million.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 3

    Madden Company projected its income before taxes for next year as shown here.

    Madden is subject to a 40% inco


    $8,000,000 Cost of sales Variable costs ......... 2,000,000 Fixed costs .......... $3,000,000 Pretax profit ........... $3,000,000
    breakeven point in units sold for the next year? C. If Madden’s
    net assets are $36 million, what amount of revenue must be achieved for Madden to earn a 10% after-tax return

    Selling Price Per Unit (8000000/160000) 50.00


    Less Variable expenses (2000000/160000) -12.50
    Contribution Margin Per Unit 37.50

    Breakeven Point in Units = Fixed Expenses


    Contribution Margin Per Unit

    3000000
    37.50

    Breakeven Point in Units = 80000 Units

    B. If Madden wants $4.5 million in pretax profit, what is the required level of sales in dollars?

    Contribution Margin Ratio = Contribution Margin


    Sales

    37.50
    50.00

    Contribution Margin Ratio = 75.00%

    Breakeven Point in Sales dollars = Fixed expenses + Target Profit


    Contribution Margin Ratio

    3000000+4500000
    75%

    7,500,000
    75.00%

    Breakeven Point in Sales dollars = 10000000

    C. If Madden’s net assets are $36 million, what amount of revenue must be achieved for Madden to earn a 10% af

    Return on Assets = After Tax Income


    Net Assets
    10 % = After Tax Income
    36000000

    After Tax Income = 36000000*10%

    After Tax Income = 3600000

    Breakeven Point in Sales dollars = Fixed expenses + Target Profit


    Contribution Margin Ratio

    3000000+3600000
    75%

    6,600,000
    75.00%

    Breakeven Point in Sales dollars = 8800000


    Madden is subject to a 40% income tax rate. Sales (160,000 units) .......
    Pretax profit ........... $3,000,000 REQUIRED A. What is Madden’s

    o earn a 10% after-tax return on assets?

    d for Madden to earn a 10% after-tax return on assets?

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