Posted: April 11th, 2016

How to solve the income tax ?

Air Production Company produces pneumatic lifts used to assist emergency rescue teams used to assist victims of auto and other accidents. The costs of manufacturing and marketing the pneumatic lifts at the company’s normal volume of 3000 per month are shown in Exhibit 1.

Exhibit 1

Unit manufacturing costs:
Variable materials $495
Variable labor $795
Variable Overhead $475
Fixed Overhead $640
Total unit manufacturing costs $2,405

Unit marketing costs:
Variable $235
Fixed $745
Total unit marketing costs $980

Total unit costs $3,385


The following refers to the data given in exhibit 1. Treat each problem separately. Unless otherwise stated, assume a selling price of $4250 per lift. Ignore income taxes. Assume no beginning or ending inventories.

Using the contribution margin income statement format prepare:

1. A schedule that shows income at the following amounts of production: 350,000; 390,000; 450,000 and 500,000#.

2. Assume that the relevant range holds for production levels at this range of activity.

3. Include the impact of taxes on income at each level of activity. In other words, show income before and after taxes in the schedule.

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