Question

KTR Company earns a $10 profit on each unit of manufactured goods, and it sells 20 million units each year. KTR's income tax rate is20 percent.However,thejurisdiction in which KTR operates just increased the tax rate to 22 percent for next year.KTR's owners are considering two alternatives. They could simply accept the $4 million tax increase as a reduction in their after-tax profit, or they could 0.66 raise the price of each unit by 20 cents, thereby increasing the profit per unit to $10.20. However, the marketing department estimates points that the price increase could reduce annual sales to 19 million units.

Answer 1

The income calculated shows the the best alternative will be alternative 1.

How to illustrate a the information?

It should be noted that the after tax profit for alternative 1 will be:

= (20 million × 10) - 50 million

= 150 million

It should be noted that the after tax profit for alternative 2 will be:

= (19 million × 10.50) - 49.875 million

= 149.625 million

Therefore, the income calculated shows the the best alternative will be alternative 1 as it's higher.

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