Question

Anderson Corporation predicts that this year's sales will total $7,500,000. The selling price for their product is $62.50 per unit. Variable costs amount to $38 per unit. Net income (after taxes) is projected to be $165,750. The firm's marginal tax rate is 35%. What will be the firm's total fixed costs?

Answer 1

Answer:

$2,685,000

Explanation:

Sales = $7,500,000 ÷ $62.50

         = 120,000 units

Contribution = Sales - Variable cost

                     = $7,500,000 - (120,000 × $38)

                     = $7,500,000 - $45,60,000

                     = $29,40,000

Net income (after taxes) = $165,750

Net income before taxes and interest:

= Net income (after taxes) × (100 ÷ 65)

= $165,750 × (100 ÷ 65)

= 255,000

Therefore,

EBIT = Contribution - Fixed cost

255,000 =  $29,40,000 - Fixed cost

Fixed cost  = $29,40,000 - 255,000

                  = $2,685,000