Franklin Optical Shop has been in operation for several years. Analysis of the firm’s recent and records reveals the following:
Average selling price per pair of glasses………………….. $70
Variable expenses per pair:
Lenses and frames………………………………………… $28
Sales commission…………………………………………. 12
Variable overhead………………………………………… 8
Annual fixed costs:
Selling expenses …………………………………………..$18,000
Administrative expenses …………………………………. 48,000
The company’s effective tax rate is 40 percent. Samantha Franklin, company president, has asked you to help her answer the following questions about the business.
a. What is the break-even point in pairs of glasses? In dollars?
b. How much revenue must be generated to produce $80,000 of pretax earnings? How many pairs of glasses would this level of revenue represent?
c. How much revenue must be generated to produce $80,000 of after-tax earnings? How many pairs of glasses would this represent?
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