question archive Carter Manufacturing Company manufactures exclusive pens which sell for $71 per unit
Subject:AccountingPrice:3.87 Bought7
Carter Manufacturing Company manufactures exclusive pens which sell for $71 per unit. Its unit variable costs are $50 and fixed expenses are $389,500. The company pays income tax at the rate of 40%. |
Required: |
1. | How many units must Carter sell to earn an after-tax income of $24,600? |
2. |
Re-compute the sales level to earn the above-mentioned after-tax income if the tax rate changes to 20%. |
Answer:
a. Required Before tax profit = $ 24,600 / 60%
= $ 41,000
Required Contribution = Required Before tax profit + Fixed cost
= $ 41,000+ $ 389,500
= $ 430,500
Contribution Margin =Selling price - variable cost
= $ 71 - $ 50
= $ 21
The units must Carter sell to earn an after-tax income of $24,600 = Required Contribution / Contribution Margin
= $ 430,500 / $ 21
= 20,500 Units
Hence the correct answer is 20,500 Units
b.
Required Before tax profit = $ 24,600 / 80%
= $ 30,750
Required Contribution = Required Before tax profit + Fixed cost
= $ 30,750+ $ 389,500
= $ 420,250
Contribution Margin =Selling price - variable cost
= $ 71 - $ 50
= $ 21
The units must Carter sell to earn an after-tax income of $24,600 = Required Contribution / Contribution Margin
= $ 420,250/ $ 21
= 20,012 Units
Hence the correct answer is 20,012 Units