Breakeven and Cost-Volume-Profit with Taxes

question 51

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

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Definitions:

Defense Mechanisms

Defense mechanisms are psychological strategies used unconsciously by individuals to protect themselves from anxiety and to manage internal conflicts.

Depressed Subjects

Individuals who are undergoing or have been through significant depressive episodes, marked by persistent feelings of sadness, loss of interest, and other emotional and physical symptoms.

Favorable Self-concepts

Positive beliefs or perceptions an individual holds about themselves, reflecting aspects like self-worth and competence.

Realistic Self-concepts

An individual's accurate and factual perception and understanding of their strengths, weaknesses, and character.