CVP and profit planning, contribution margin ratio approach, taxes. Arena Auto Body specializes in repairing automobiles involved in accidents. Arena has contracts with most insurance providers,...

CVP and profit planning, contribution margin ratio approach, taxes. Arena Auto Body specializes in repairing automobiles involved in accidents. Arena has contracts with most insurance providers, enabling Arena to directly bill (and collect from) customers’ insurance companies. Arena estimates that its variable costs equal 30% of billings and that fixed costs equal $14,000 per month. Furthermore, Arena pays income taxes equal to 35% of profit.

Required:

a. How does Arena’s monthly after-tax profit increase as revenue increases? (Note:
Given the absence of unit-level data, you will need to express the profit in terms of revenues, or billings.)

b. What is Arena’s monthly breakeven point in billings?

c. Suppose Arena’s billings for March were $50,000. What is Arena’s profit before taxes? What is Arena’s profit after taxes?

d. Suppose Arena wants to have profit after taxes of $7,280 per month. What is the required level of monthly billings?