Question

In: Accounting

How much revenue must be generated to realize $79,900 of after-tax earnings? How many swimsuits would this represent?

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?

Solutions

Expert Solution

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 

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