Question

A company sells its single product for $40 per unit. The company's after-tax net income for the past year was $1,782,000 after applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are listed below.

Variable costs per unit $
Direct material 5
Direct labor 4
Manufacturing overhead 6
Selling and administrative costs 3
Total variable cost per unit 18
Annual fixed operating costs
Manufacturing overhead 6,200,000
Selling and administrative costs 3,700,000
Total annual fixed cost 9,900,000

The dollar sales volume required in the coming year to earn the same after-tax net income as the past year is _______.

Answer 1

Answer:

The dollar sales volume required in the coming year to earn the same after-tax net income as the past year is _______. $ 23400,000

It means the company needs to sell $ 23400,000/ $40= 585,000 units

Explanation:

Projected Sales Volume= Fixed Costs + Profit Objective / Contribution Margin Ratio

Projected Sales Volume=  9,900,000+2970,000/ 1- (variable/ Sales)

Projected Sales Volume=  9,900,000+2970,000/ 1-(18/40)

Projected Sales Volume=  9,900,000+2970,000/0.55

Projected Sales Volume= 12870,000/0.55

Projected Sales Volume=  $ 23400,000

Working

Sales  $ 40 per unit

Variable costs per unit $

Direct material 5

Direct labor 4

Manufacturing overhead 6

Selling and administrative costs 3

Total variable cost per unit 18

Contribution Margin  $ 22 per unit

Annual fixed operating costs

Manufacturing overhead 6,200,000

Selling and administrative costs 3,700,000

Total annual fixed cost 9,900,000

Profit Required before Tax  2970,000

40 % 0f 2970,000= $ 1188,000

Profit Required after Tax $1,782,000