Answer:
1. Before-tax profit = $500,000
2. Number of units that will yield the operating income = 9,915 units
Explanation:
1. Calculate the before-tax profit needed to achieve an after-tax target of $300,000.
This can be calculated as follows:
After-tax target = Before-tax profit * (100% - Tax rate) ……………….. (1)
Substituting the relevant values into equation (1) and solve for Before-tax profit, we have:
$300,000 = Before-tax profit * (100% - 40%)
$300,000 = Before-tax profit * 60%
Before-tax profit = $300,000 / 60%
Before-tax profit = $500,000
2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. If required, round your answer to the nearest whole unit.
This can be calculated as follows:
Contribution margin = Selling price per unit - Direct materials per unit - Direct labor per unit - Variable overhead per unit - Variable selling expense per unit = $300 - $90 - $66 - $15 - $12 = $117
Before-tax profit = (Contribution margin * Number of units that will yield the operating income) - Total fixed factory overhead - Fixed selling and administrative expense ………………. (2)
Substituting the relevant values into equation (2) and solve for Number of units that will yield the operating income, we have:
$500,000 = ($117 * Number of units that will yield the operating income) - $405,000 - $255,000
$500,000 + $405,000 + $255,000 = $117 * Number of units that will yield the operating income
$1,160,000 = $117 * Number of units that will yield the operating income
Number of units that will yield the operating income = $1,160,000 / $117 = 9,914.52991452991
Rounding to the nearest whole unit, we have:
Number of units that will yield the operating income = 9,915 units
