Question

After-Tax Profit Targets

Olivian Company wants to earn $300,000 in net (after-tax) income next year. Its product is priced at $400 per unit. Product costs include:

Direct materials	$120.00
Direct labor	$88.00
Variable overhead	$20.00
Total fixed factory overhead	$450,000

Variable selling expense is $16 per unit; fixed selling and administrative expense totals $300,000. 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
Sales	$
	$
Total variable expense
Fixed expense	$
Income taxes	$

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?
Lower

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