Question

Cornerstone Exercise 16.4 (Algorithmic)
After-Tax Profit Targets

Olivian Company wants to earn $300,000 in net (after-tax) income next year. Its product is priced at $300 per unit. Product costs include:

Direct materials	$90.00
Direct labor	$66.00
Variable overhead	$15.00
Total fixed factory overhead	$420,000

Variable selling expense is $12 per unit; fixed selling and administrative expense totals $270,000. Olivian has a tax rate of 40 percent.

Required:

1. Calculate the before-tax profit needed to achieve an after-tax target of $300,000.
$

2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. If required, round your answer to the nearest whole unit.
units

3. Prepare an income statement for Olivian Company for the coming year based on the number of units computed in Requirement 2. Do NOT round interim calculations and, if required, round your answer to the nearest dollar.

Olivian Company
Income Statement
For the Coming Year
		Total
Contribution margin Income taxes Operating income Sales Variable expense Correct 5 of Item 2		$ Correct 6 of Item 2
Income taxes Operating income Sales Total fixed expense Total variable expense Correct 7 of Item 2		Correct 8 of Item 2
Income taxes Operating income Sales Total contribution margin Total variable expense Correct 9 of Item 2		$ Correct 10 of Item 2
Income taxes Operating income Sales Total fixed expense Total variable expense Correct 11 of Item 2		Correct 12 of Item 2
Fixed expense Income taxes Operating income Sales Variable expense Correct 13 of Item 2		$ Correct 14 of Item 2
Less: Income taxes Less: Operating income Less: Sales Add: Income taxes Add: Sales Correct 15 of Item 2		Correct 16 of Item 2
Net income Net loss Correct 17 of Item 2		$ Correct 18 of Item 2

4. What if Olivian had a 35 percent tax rate? Would the units sold to reach a $300,000 target net income be higher or lower than the units calculated in Requirement 2?
- Select your answer -HigherLowerCorrect 1 of Item 3

Calculate the number of units needed at the new tax rate. In your calculations, round before-tax income to the nearest dollar. Round your answer to the nearest whole unit.
units

Answer 1