Question

A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs, expects to sell 2,500 units, and has a tax rate of 35%, the pre-tax income is $________________.

Answer 1

Answer: $28,000

Explanation:

Given the following ;

Contribution margin per unit = $36

Total fixed cost = $62,000

Expected unit sale = 2500 units

Tax rate = 35%

Pre-income =?

Contribution margin could be interpreted as the profit made on each unit of an item without taking the fixed cost into consideration. That is, difference between the selling price per unit and the variable cost per unit.

Therefore, with a contribution margin of $36 per unit, total profit made by selling 2500 units, without taking fixed cost into consideration equals :

$36 × 2500 = $90,000

Pretax income means income made after deducting total cost of production ( both variable and fixed cost), Before taxes are deducted.

Therefore, Pretax income would be :

Contribution margin - total fixed cost

Pretax income = $90,000 - $62,000 = $28,000

Answer 2

Answer:

Pretax income= $28,000

Explanation:

Giving the following information:

A company produces a product with a contribution margin per unit of $36. The company incurs $62,000 in total fixed costs and expects to sell 2,500 units.

The pretax income is calculated by deducting from the total contribution margin the fixed costs.

Pretax income= 2,500*36 - 62,000= $28,000