Quantities of units to be sold=fixed costs+target operating income/contribution

Question

Quantities of units to be sold=fixed costs+target operating income/contribution margin ($75,000 FC + $125,000 TP)/$20 CM per unit =10,000 units to achieve a $125,000 profit. Sales 10,000 units x $50=$500,000 Less VC 10,000 units x $30=$300,000 Equals CM total $200,000 Less fixed costs $75,000 Equals operating income=$125,000 What if the $125,000 target profit was "after tax"? Assuming this after-tax target profit is for a corporation in the 30% tax bracket, how many units must the company sell to achieve the $125,000 after- tax profit ? Quantities of units to be sold=fixed costs+target operating income/contribution margin ($75,000 FC + $125,000 TP)/$20 CM per unit =10,000 units to achieve a $125,000 profit. Sales 10,000 units x $50=$500,000 Less VC 10,000 units x $30=$300,000 Equals CM total $200,000 Less fixed costs $75,000 Equals operating income=$125,000 What if the $125,000 target profit was "after tax"? Assuming this after-tax target profit is for a corporation in the 30% tax bracket, how many units must the company sell to achieve the $125,000 after- tax profit ? Quantities of units to be sold=fixed costs+target operating income/contribution margin ($75,000 FC + $125,000 TP)/$20 CM per unit =10,000 units to achieve a $125,000 profit. Sales 10,000 units x $50=$500,000 Less VC 10,000 units x $30=$300,000 Equals CM total $200,000 Less fixed costs $75,000 Equals operating income=$125,000

Explanation / Answer

Tax rate   30% Say pretax profirt = x After Tax Profit = 0.70*x so , 0.70*x =125,000 or x= 178571 So required Pretax profit =           178,571 Units =(75000+178,571)/20=             12,679 So required units to be sold for $125,000 after tax income is 12,679

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