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Question - Product Planning with Taxes - Assume that last year, Cliff Consulting, a firm in Berkeley, CA, had the following contribution income statement:
CLIFF CONSULTING Contribution Income Statement For the Year Ended September 30
Sales revenue
$1,200,000
Variable costs
Cost of services
$480,000
Selling and administrative
60,000
540,000
Contribution margin
660,000
Fixed Costs -selling and administrative
440,000
Before-tax profit
220,000
Income taxes (21%)
46,200
After-tax profit
$ 173,800
Required -
(a) Determine the annual break-even point in sales revenue.
(b) Determine the annual margin of safety in sales revenue.
(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $80,000?
(d) With the current cost structure, including fixed costs of $440,000, what dollar sales revenue is required to provide an after-tax net income of $250,000?
(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.
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