In: Accounting
Cornwell Company is in business since 2010, makes swimwear for professional athletes. Analysis of the firm's record for the year reveals the following:
Average swimsuit selling price $140
Average swimsuit expenses:
Direct Material $60
Direct labor 25
Variable overhead 15
Annual fixed cost:
Selling $20,500
Administrative 48,000
The company's tax rate is 40 percent. Daisy Rin, company president, has asked you to help her answer: How much revenue must be generated to realize $79,900 of after-tax earnings? How many swimsuits would this represent?
After-tax earnings
Before-tax income = After-tax income/ 1-tax rate
= $79,900/0.60
= $133,166.67
Target Sales Revenue = Fixed Cost +Target profit margin/Sales Price (per unit) - Variable cost (per unit)/Sales Price
= $68,500 + $133,166.67/$140-$100/$40
= $201,666.67/0.28571428571
= $705,833.33
Number of swimsuits = Target Sales Revenue/ Sales Price
= $705,833.33/$140
= 5,041.67 or 5,042 swimsuits
$705,833.33 revenue after-tax
5,041.67 or 5,042 swimsuits