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This is not the correct answer. Please see the correct answer for an explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
The breakeven point is calculated by dividing the additional fixed costs plus the desired pre-tax income by the contribution margin. It is important to note that the given desired after-tax income is $30,000. To calculate the answer, you need to find the pre-tax income. The pre-tax income is $50,000 ($30,000 / (1 ? .40). Fixed costs + the desired pre-tax net income = $120,000 + $50,000, or $170,000. $170,000 / [$14 ? ($3.25 + $4.00 + $.75)] = 28,333 units, which rounded to the nearest hundred is 28,300 units. Note that it is possible to work this problem incorrectly but get the correct answer, by making two offsetting mistakes: (1) by including the corporate fixed charge of $20,000 currently absorbed by other products that will be allocated to this new product as a fixed cost of the new product. The $20,000 is already being paid by the company, and it will not change as a result of this new product. Therefore, it is not relevant. And (2) by using the desired after-tax net income of $30,000 instead of the pre-tax net income of $50,000 in the calculation.
20,000 units is the breakeven volume. This volume does not include the desired increase of $30,000 in after-tax income.
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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%.