Answer:
The question is not complete, find the complete question below:
A company that sells its single product for $40 per unit uses cost-volume-profit analysis in its planning. The company’s after-tax net income for the past year was $1,188,000 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.
Direct material $5
Direct labor $4
Manufacturing overhead $6
Selling and administrative $3
Total variable cost $18
Annual fixed overhead costs
Manufacturing overhead $6200000
Selling and administrative $3700000
Total overheads $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
A. $20,160,000
B. $21,600,000
C. $23,400,000
D. $26,400,000
The correct option is B
Explanation:
The desired after tax net income=$1188000
Since tax rate is 40%,the desired pre-tax net income=$1188000/(1-0.4)
=$1980000
In arriving at the target sales in units,the desired pre-tax net income can be used:
pre-tax net income=sales-fixed costs-variable costs
sales=unit price*volume
variable costs=variable cost per unit *volume
Since volume is not given,let volume be represented by x
$1980000=$40*x-$18*x-$9900000
$1980000+$9900000=22x
$11880000=22x
x=11880000/22
x=$21600000
