Reid Recreation Products Sells The Amazing Foam Frisbee

Reid Recreation Products Sells The Amazing Foam Frisbee For 12 Th

Reid Recreation Products sells the Amazing Foam Frisbee for $12. The variable cost per unit is $2; fixed costs are $36,100 per month. Determine the breakeven point and breakeven sales in units and dollars. Calculate how many frisbees Reid must sell to earn $21,100 in operating income. Determine the operating income required to achieve a net income of $19,080, considering a 40% tax rate. Finally, find out how many frisbees need to be sold to net $19,080 after taxes.

Paper For Above instruction

Reid Recreation Products operates within a typical break-even and profit analysis framework. The company's product, the foam frisbee, is sold at a unit price of $12, with a variable cost per unit of $2. The fixed costs are $36,100 monthly. In this context, understanding the break-even point, required sales for targeted income, and impact of taxes on net income is essential for effective operational planning.

Breakeven Point and Breakeven Sales

The breakeven point (BEP) is where total revenues equal total expenses, resulting in zero profit. It can be calculated using the formula:

BEP (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Substituting the known values:

BEP (units) = $36,100 / ($12 - $2) = $36,100 / $10 = 3,610 units

This means Reid needs to sell 3,610 frisbees to cover all fixed and variable costs. To find the breakeven sales in dollars:

Breakeven Sales (dollars) = Breakeven Units Selling Price per Unit = 3,610 $12 = $43,320

Sales Required for Operating Income of $21,100

To determine the sales volume needed to earn specific operating income, the formula adjusts for desired profit:

Sales (units) = (Fixed Costs + Desired Operating Income) / (Contribution Margin per Unit)

where Contribution Margin per Unit = Selling Price - Variable Cost = $12 - $2 = $10

Plugging in the values:

Sales (units) = ($36,100 + $21,100) / $10 = $57,200 / $10 = 5,720 units

Operating Income Required for Net Income of $19,080 at 40% Tax Rate

Net income is after taxes; thus, operating income before taxes (EBIT) must be:

EBIT = Net Income / (1 - Tax Rate) = $19,080 / (1 - 0.40) = $19,080 / 0.60 = $31,800

Sales Needed to Achieve a Net Income of $19,080 After Taxes

This involves calculating the required operating income and then the necessary sales:

Required sales (units) = (Fixed Costs + EBIT) / Contribution Margin per Unit

= ($36,100 + $31,800) / $10 = $67,900 / $10 = 6,790 units

In dollars:

Required sales (dollars) = 6,790 units * $12 = $81,480

Therefore, Reid must sell approximately 6,790 frisbees, totaling $81,480 in sales, to earn net income of $19,080 after taxes.

Conclusion

Effective financial planning requires understanding the break-even point and sales targets for desired profit levels. By calculating these metrics considering tax implications, Reid Recreation Products can better strategize sales efforts and set realistic financial goals to sustain profitability and growth.

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