Break-Even and Cost-Volume-Profit with Taxes

question 12

Essay

Break-even and Cost-Volume-Profit with Taxes
DisKing Company sells used DVDs on line. The projected after-tax net income for the current year is $120,000 based on a sales volume of 200,000 DVDs. 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.
Required:
a. Calculate DisKing Company's break-even point for the current year in number of DVDs.
b. Calculate the increased after-tax income for the current year if projected unit sales volume increase 10 percent.
c. Management expects that the price DisKing pays for used DVDs to increase 30 percent next year. 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.

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Definitions:

Referendum

A direct vote by the electorate on a specific question, proposal, or issue, often used to make decisions on legislative amendments or policy changes.

Fiscal Year

A one-year period used for accounting and financial purposes, which may or may not align with the calendar year.

Founding Fathers

The group of leaders who laid the foundational governance structures of the United States and were instrumental in the drafting of key documents such as the Declaration of Independence and Constitution.

Northwest Ordinance

An act of the Congress of the Confederation of the United States passed in 1787 to create a structured settlement of the Northwest Territory and establish a precedent for the admission of future states.