CVP analysis

CVP analysis, income taxes. Diego Motors is a small car dealership. On average, it sells a car for $25,000, which it purchases from the manufacturer for $22,000. Each month, Diego Motors pays $50,000 in rent and utilities and $60,000 for salespeople’s salaries. In addition to their salaries, salespeople are paid a commission of $500 for each car they sell. Diego Motors also spends $10,000 each month for local advertisements.

Its tax rate is 40%.

1. How many cars must Diego Motors sell each month to break even?

2. Diego Motors has a target monthly net income of $54,000. What is its target monthly operating income?

3. How many cars must be sold each month to reach the target monthly net income of $54,000?