Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the prod... Accounting MCQs | Accounting MCQs

Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the product:

Unit Costs

Direct materials

$3.25

Direct labor

4.00

Distribution

.75

The company will also be absorbing $120,000 of additional fixed costs associated with this new product. A corporate fixed charge of $20,000 currently absorbed by other products will be allocated to this new product.
How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of $14 per unit to increase after-tax income by $30,000? Bruell Electronics’ effective income tax rate is 40%.

10,700 units.
12,100 units.
20,000 units.
28,300 units.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. The number of units to be sold to generate a specified pre-tax income equals the sum of total fixed costs and the targeted pre-tax income, divided by the unit contribution margin. Given a desired after-tax income of $30,000 and a tax rate of 40%, the targeted pre-tax income must be $50,000 [$30,000 ÷ (1.0 – .40)]. Unit variable costs total $8 ($3.25 + $4.00 + $.75), and UCM is $6 ($14 unit selling price – $8). Hence, the desired unit sales level is 28,333 [($120,000 + $50,000) ÷ $6]. Rounded to the nearest hundred, the answer is 28,300 units.