Question 457186: . (Fixed costs and the break-even point) Dot’s Quik-Stop Party Store expects to earn $40,000 next year after taxes. Sales will be $400,000. The store is located near the fraternity-row district of Cambridge Springs State University and sells only kegs of beer for $20 a keg. The variable cost per keg is $8. The store experiences a 40 percent tax rate.
A. What are the Party Store’s fixed costs expected to be next year?
B. Calculate the firm’s break-even point in both units and dollars.
Answer by amoresroy(361)   (Show Source):
You can put this solution on YOUR website! Fixed Cost = Gross Profit - Taxable Income
Where:
Gross Taxable Income = 40,000/0.6 = 66,666.67
and
Gross Profit = Sales * Gross Profit Margin
= 400,000 * (12/20)
= 240,000
A. Fixed Cost = 240,000 - 66,666.67
= 173,333.33
Break-even point
Gross Profit = Fixed Cost
Let y = the firm's break-even point in units
20y = the firm's break-even point in dollars
Gross Profit = y * profit per unit
= y(20-8)
= 12y
12y = 173,333.33
y = 14,445
20y = 288,900
B. The firm's break-even point is 14,445 kegs, $288,900 in dollar sales
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