Reference no: EM133011110
Question - Baker Optical Shop has been in operation for several years. Analysis of the firm's recent financial statements and records reveal the following:
Average Selling price per pair of glasses $70
Variable expenses per pair:
Lenses and frames $28
Sales commission 12
Variable overhead 8
Annual fixed costs:
Selling expenses $18,000
Administrative expenses 48,000
The company's effective tax rate is 40 percent.
Sara's Baker, company president, has asked you to help her answer the following questions about the business.
Required -
a. What is the break-even point in pairs of glasses? In Birr?
b. How much revenue must be generated to produce $80,000 of pretax earnings? How many pairs of glasses would this level of revenue represent?
c. How much revenue must be generated to produce $80,000 of after-tax earnings? How many pairs of glasses would this represent?
d. What amount of revenue would be necessary to yield an after-tax profit equal to 15% of revenue?
e. Banker is considering adding a lens-grinding lab, which will save Br. 6 per pair of glasses in lens cost, but will raise annual fixed costs by Br. 8,000.
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