P16-28. Profit Planning with Taxes

Carron Net Company manufactures sports nets for virtually every outdoor sport. Assume Carron sells

nets for $50, on average, per unit. Last year, the company manufactured and sold 30,000 nets to obtain an

after-tax profit of $275,000. Variable and fixed costs follow.

Variable Costs per Unit Fixed Costs per Year

Manufacturing. . . . . . . . . . . . . . . . . . . . . $20 Manufacturing. . . . . . . . . . . . . . . . . . . . . $232,250

Selling and administrative. . . . . . . . . . . . 4 Selling and administrative. . . . . . . . . . . . 204,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $436,250

Required

a. Determine the tax rate the company paid last year.

b. What unit sales volume is required to provide an after-tax profit of $400,000?

c. If the company reduces the unit variable cost by $4 and increases fixed manufacturing costs by

$53,000, what unit sales volume is required to provide an after-tax profit of $400,000?

d. What assumptions are made about taxable income and tax rates in requirements (a) through (c)?