Question

In: Accounting

Mona Company incurs $60,000 of annual fixed costs in manufacturing and selling a product that it...

Mona Company incurs $60,000 of annual fixed costs in manufacturing and selling a product that it sells for $15 per unit. The variable costs of manufacturing and selling the product are $9 per unit. If Mona Company has a 30% income tax rate, and its management wants to earn an annual after-tax income of $35,000. Determine the dollar sales volume that the company must achieve to reach this target income level.

$200,000

$350,000

$275,000

$95,000

$250,000

Mona Company incurs $60,000 of annual fixed costs in manufacturing and selling a product that it sells for $15 per unit. The variable costs of manufacturing and selling the product are $9 per unit. If Mona Company has a 30% income tax rate, determine the amount of after-tax income that Mona Company would earn from $420,000 sales volume.

$108,000

$90,000

$28,000

$75,600

$280,000

Solutions

Expert Solution

Part 1

Fixed cost = $60,000

Selling price per unit = $15

Variable cost per unit =$9

Income tax rate = 30%

Target profit after tax income = $35,000

Contribution margin per unit = Selling price per unit- Variable cost per unit

= 15-9

= $6

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= 6/15

= 40%

Income before tax = Income after tax / (1- tax rate)

= 35,000/ (1-0.30)

= 35,000/0.70

= $50,000

Sales to earn target income = (fixed cost + Target income)/Contribution margin ratio

= (60,000+50,000)/40%

= $275,000

The dollar sales volume that the company must achieve to reach this target income level = $275,000

Third option is correct.

Part 2

Fixed cost = $60,000

Selling price per unit = $15

Variable cost per unit =$9

Income tax rate = 30%

Sales volume = $420,000

After tax income = ?

Number of units sold = Sales/ Selling price per unit

= 420,000/15

= 28,000

Income Statement
Sales (28,000 x 15)	420,000
Variable costs (28,000 x 9)	-252,000
Contribution margin	168,000
Fixed costs	-60,000
Operating income	108,000
Income tax expense (108,000 x 30)	-32,400
Net income	$75,600

The amount of after-tax income that Mona Company would earn from $420,000 sales volume = $75,600

Fourth option is correct.

ekkarill92 answered 7 months ago

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