Target Profit Measured in Units (with Taxes) Optical Incorporated has annual fixed costs totaling $6,000,000 and variable costs of $350 per unit. Each unit of product is sold for $500. Assume a tax rate of 20 percent. Required: a Use the three steps described in the chapter to determine how many units must be sold to earn an annual profit of $100,000 after taxes. (Round to the nearest unit) Support the calculation in requirement a, by constructing a contribution income statement b Use the three steps described in the chapter to determine the sales dollars required to earn an annual profit of $150,000 after taxes Support the calculation in requirement b, by constructing a contribution income statement a 500 100% 70% Sales price per unit Variable cost per unit Fixed costs per month Target profit, after tax 500 350 6,000,000 100,000 b Sales price per unit Variable cost per unit Fixed costs per month Target profit, after tax 350 6,000,000 150,000 Step 1. Determine the desired target profit after taxes (i.e., after accounting for income taxes). Step 1. Determine the desired target profit after taxes (i.e., after accounting for income taxes). Step 2. Convert the desired target profit after taxes to the target profit before taxes. Tax Rate 20% After tax Profit 100,000 by (1-Tax rate) 125,000 Step 2. Convert the desired target profit after taxes to the target profit before taxes. Tax Rate 20% After tax Profit 150,000 by (1-Tax rate) 187,500 Step 3. Use the target profit before taxes in the appropriate formula to calculate the target profit in units or sales dollars. Step 3. Use the target profit before taxes in the appropriate formula to calculate the target profit in units or sales dollars. Profit Units Ils Profit Dollars CM Ratio Profit V) x Q) F Profit S F 187,500 X X 20,625,000 = Note: Only the "final answer" I this calculation will turn green. Note: Only the "final answer" I this calculation will turn green. Sales Less: Variable Contribution Margin Less: Fixed Operating Income Income tax Income after Tax 6,125,000 6,000,000 125,000 25,000 100,000 Sales Less: Variable Contribution Margin Less: Fixed Operating Income Income tax Income after Tax 20,625,000 14,437,500 6,187,500 6,000,000 187,500 37,500 150,000 Target Profit Measured in Units (with Taxes) Optical Incorporated has annual fixed costs totaling $6,000,000 and variable costs of $350 per unit. Each unit of product is sold for $500. Assume a tax rate of 20 percent. Required: a Use the three steps described in the chapter to determine how many units must be sold to earn an annual profit of $100,000 after taxes. (Round to the nearest unit) Support the calculation in requirement a, by constructing a contribution income statement b Use the three steps described in the chapter to determine the sales dollars required to earn an annual profit of $150,000 after taxes Support the calculation in requirement b, by constructing a contribution income statement a 500 100% 70% Sales price per unit Variable cost per unit Fixed costs per month Target profit, after tax 500 350 6,000,000 100,000 b Sales price per unit Variable cost per unit Fixed costs per month Target profit, after tax 350 6,000,000 150,000 Step 1. Determine the desired target profit after taxes (i.e., after accounting for income taxes). Step 1. Determine the desired target profit after taxes (i.e., after accounting for income taxes). Step 2. Convert the desired target profit after taxes to the target profit before taxes. Tax Rate 20% After tax Profit 100,000 by (1-Tax rate) 125,000 Step 2. Convert the desired target profit after taxes to the target profit before taxes. Tax Rate 20% After tax Profit 150,000 by (1-Tax rate) 187,500 Step 3. Use the target profit before taxes in the appropriate formula to calculate the target profit in units or sales dollars. Step 3. Use the target profit before taxes in the appropriate formula to calculate the target profit in units or sales dollars. Profit Units Ils Profit Dollars CM Ratio Profit V) x Q) F Profit S F 187,500 X X 20,625,000 = Note: Only the "final answer" I this calculation will turn green. Note: Only the "final answer" I this calculation will turn green. Sales Less: Variable Contribution Margin Less: Fixed Operating Income Income tax Income after Tax 6,125,000 6,000,000 125,000 25,000 100,000 Sales Less: Variable Contribution Margin Less: Fixed Operating Income Income tax Income after Tax 20,625,000 14,437,500 6,187,500 6,000,000 187,500 37,500 150,000
