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Question: The Big Mug Company manufactures plastic mugs that sell to wholesalers for $4.00 each. Variable and fixed costs are as follows: Variable Costs per Unit Fixed Costs per Month Manufacturing: Direct materials $0.60 Factory overhead $ 8,000 Direct labor 0.70 Selling and admin. 6,000 Factory overhead 0.50 $1.80 Total $14,000 Selling and admin. 0.40 Total $2.20 Big Mug produced and sold 10,000 cups during April 2020. There was no beginning or ending inventories.
a. Determine Big Mug's monthly break-even point in units.
b. If monthly sales increase by 500 cups, what will be the change in monthly profits?
c. If Big Mug is now subject to an income tax of 40 percent, what dollar sales volume is required to earn a monthly after-tax target net income (profit) of $12,000?
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