Answer (A) is correct . Delphi’s breakeven point is 22,500 units ($450,000 fixed costs ÷ $20 UCM). The unit contribution margin (UCM) is $20 ($36 selling price – $16 unit variable costs). At the breakeven point, all fixed costs have been recovered. Hence, pretax profit equals the unit contribution margin times unit sales in excess of the breakeven point, or $50,000 [(25,000 unit sales – 22,500 BEP) × $20 UCM]. After-tax profit is $30,000 [$50,000 × (1.0 – .40)].
Answer (B) is incorrect because This amount is the pre-tax profit.
Answer (C) is incorrect because This amount fails to include depreciation as a fixed cost and ignores income taxes.
Answer (D) is incorrect because This amount fails to include depreciation as a fixed cost.
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The maximum after-tax profit that can be earned by Delphi Company from sales of the new product during the next fiscal year is
