Breakeven and Cost-Volume-Profit with Taxes

Essay

Breakeven and Cost-Volume-Profit with Taxes
DisKing Company is a retailer for video disks. The projected after-tax net income for the current year is $120,000 based on a sales volume of 200,000 video disks. DisKing has been selling the disks at $16 each. The variable costs consist of the $10 unit purchase price of the disks and a handling cost of $2 per disk. DisKing's annual fixed costs are $600,000 and DisKing is subject to a 40 percent income tax rate.
Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent.
Required:
a. Calculate DisKing Company's break-even point for the current year in number of video disks.
b. Calculate the increased after-tax income for the current year from an increase of 10 percent in projected unit sales volume.
c. If the unit selling price remains at $16, calculate the volume of sales in dollars that DisKing Company must achieve in the coming year to maintain the same after-tax net income as projected for the current year.
Source: CMA adapted