What is the contribution margin per unit and the contributio…
(CVP) Casper Karts manufactures a three-wheeled shopping cart that sells for $60. Variable manufacturing and variable selling cost are, respectively, $35 and $10 per unit. Annual fixed cost is $975,000.
a. What is the contribution margin per unit and the contribution margin ratio?
b. What is the break-even point in units?
c. How many units must the company sell to earn a pre-tax income of $900,000?
d. If the company’s tax rate is 40 percent, how many units must be sold to earn an after-tax profit of $750,000?
e. If labor costs are 60 percent of the variable manufacturing cost and 40 percent of the fixed cost, how would a 10 percent decrease in both variable and fixed labor costs affect the break-even point?
f. Assume that the total market for three-wheeled shopping carts is 600,000 units per year and that Casper Karts currently has 18 percent of the market. The company wants to obtain a 25 percent market share and also wants to earn a pre-tax profit of $1,350,000. By how much must variable cost be reduced? Provide some suggestions for variable cost reductions.
