Question

Two firms, A and B, both produce brushes. The price of brushes is $1.30 each. Firm A has total fixed costs of $452,000 and variable costs of 48 cents per brush. Firm B has total fixed costs of $260,000 and variable costs of 72 cents per brush. The corporate tax rate is 30%. If the economy is strong, each firm will sell 1,500,000 brushes. If the economy enters a recession, each firm will sell 981,000 brushes.

If the economy enters a recession, what will be the after-tax profit of Firm A?

Answer 1

CALCULATION OF THE AFTER TAX PROFIT OF FIRMA A IN RECESSION
Sales in Recession (981,000 brushes X $ 1.30)	$                  12,75,300
Less: Variable Cost (981,000 X 0.48)	$                     4,70,880
Gross Revenue	$                     8,04,420
Less: Fixed Cost	$                     4,52,000
Net income beofre tax	$                     3,52,420
Less: Taxation @ 30%	$                     1,05,726
Net Income after Taxation	$                     2,46,694
Answer = After tax Profit of Firm A = $ 246,694