Asked by Ashley Mayer on May 08, 2024
Verified
Kreter Inc. earned net income of $300000 last year. This year it wants to earn net income of $450000. The company's fixed costs are expected to be $300000 and variable costs are expected to be 70% of sales.
Instructions
(a) Determine the required sales to meet the target net income of $450000 using the mathematical equation.
(b) Using a CVP income statement format prove your answer.
Variable Costs
Costs that vary in direct proportion to changes in levels of an activity or production volume.
Fixed Costs
These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.
Net Income
The total earnings of a company after subtracting all of its expenses, including taxes and operating expenses, from its total revenues.
- Master the rudimentary components of undertaking a Cost-Volume-Profit (CVP) analysis.
- Ascertain techniques for meeting set profit targets through the adjustment of sales volumes, cost allocations, and pricing strategies.
Verified Answer
BR
brittany reneeMay 11, 2024
Final Answer :
(a) Sales = Variable Cost + Fixed Cost + Target Net Income
= .70X + $300000 + $450000
.30X = $750000
= $2500000
Required Sales are $2500000. (b) Sales $2,500,000 Variable costs 1,750,000 Contribution margin 750,000 Fixed costs 300,000 Target net income $450,000\begin{array} { l r } \text { (b) Sales } & \$ 2,500,000 \\\text { Variable costs } & 1,750,000 \\\text { Contribution margin } & 750,000 \\\text { Fixed costs } & 300,000 \\\text { Target net income } & \$ 450,000 \\\end{array} (b) Sales Variable costs Contribution margin Fixed costs Target net income $2,500,0001,750,000750,000300,000$450,000
= .70X + $300000 + $450000
.30X = $750000
= $2500000
Required Sales are $2500000. (b) Sales $2,500,000 Variable costs 1,750,000 Contribution margin 750,000 Fixed costs 300,000 Target net income $450,000\begin{array} { l r } \text { (b) Sales } & \$ 2,500,000 \\\text { Variable costs } & 1,750,000 \\\text { Contribution margin } & 750,000 \\\text { Fixed costs } & 300,000 \\\text { Target net income } & \$ 450,000 \\\end{array} (b) Sales Variable costs Contribution margin Fixed costs Target net income $2,500,0001,750,000750,000300,000$450,000
Learning Objectives
- Master the rudimentary components of undertaking a Cost-Volume-Profit (CVP) analysis.
- Ascertain techniques for meeting set profit targets through the adjustment of sales volumes, cost allocations, and pricing strategies.