Riviera Incorporated produces flat panel televisions. Thecompany has annual fixed costs totaling $10,000,000 and...

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Accounting

Riviera Incorporated produces flat panel televisions. Thecompany has annual fixed costs totaling $10,000,000 and variablecosts of $600 per unit. Each unit of product is sold for $1,000.Riviera expects to sell 70,000 units this year. This is the basecase. Assume a tax rate of 20%.
REQUIRED:
a.    Find the break-evenpoint in units.
b.    How many units mustbe sold to earn an annual profit of $2,000,000?
c.     Find the marginof safety in units.
d.    What amount ofsales dollars is required to earn an annual profit of $500,000after taxes?
e.    Find thecontribution margin per unit for Riviera Inc.
f.     How much willoperating profit change if sales increase by 1,000 units?
g.    Go back to the basecase. How much will operating profit change if fixed costs are 15percent higher than anticipated? Would this increase in fixed costsresult in higher or lower operating leverage?
h.           Go back to the base case. What will operating profit (loss) be ifthe variable cost per unit increases 10%?

Answer & Explanation Solved by verified expert

4.4 Ratings (915 Votes)

a)At breakeven ,there is no profit no loss situation so fixed cost is equal to contribution

BEP (units) =Fixed cost /(price -variable cost)

= 10,000,000/(1000-600)

= 10,000,000/ 400

= 25000 units

b)Profit desired before tax =Profit desired /(1 -tax)

= 2,000,000/(1-.20)

= 2500000

Units to sell =[Fixed cost +target profit ]/[price -variable cost]

= [10,000,000+2,500,000]/[1000-600]

= 12500000/400

= 31250 units

c)Margin of safety = Actual unit sales -BEP unit sales

= 70000-25000

= 45000 units

d)Profit before taxes = 500000/(1-.20) = 625000

CM ratio = [price -variable cost]/price

= [1000-600]/1000

= 400/1000

=.40 or 40%

Sales in $ desired= [fixed cost+ profit before tax ]/CM ratio

=[10,000,000+625000]/.40

= 10625000/.40

= $ 26,562,500

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In: AccountingRiviera Incorporated produces flat panel televisions. Thecompany has annual fixed costs totaling $10,000,000 and variable...Riviera Incorporated produces flat panel televisions. Thecompany has annual fixed costs totaling $10,000,000 and variablecosts of $600 per unit. Each unit of product is sold for $1,000.Riviera expects to sell 70,000 units this year. This is the basecase. Assume a tax rate of 20%.REQUIRED:a. Find the break-evenpoint in units.b. How many units mustbe sold to earn an annual profit of $2,000,000?c. Find the marginof safety in units.d. What amount ofsales dollars is required to earn an annual profit of $500,000after taxes?e. Find thecontribution margin per unit for Riviera Inc.f. How much willoperating profit change if sales increase by 1,000 units?g. Go back to the basecase. How much will operating profit change if fixed costs are 15percent higher than anticipated? Would this increase in fixed costsresult in higher or lower operating leverage?h. Go back to the base case. What will operating profit (loss) be ifthe variable cost per unit increases 10%?