Friday, 13 February 2015

Blanchard Company manufactures a single product that sells for $240 per unit and whose total variable costs are $180 per unit. The company targets an annual after-tax income of $900,000. The company is subject to a 40% income tax rate. Assume that fixed costs remain at $954,000.

Blanchard Company manufactures a single product that sells for $240 per unit and whose total variable costs are $180 per unit. The company targets an annual after-tax income of $900,000. The company is subject to a 40% income tax rate. Assume that fixed costs remain at $954,000.
(1) Compute the unit sales to earn the target after-tax net income.


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Explanation:
Preliminary computations

 Pretax income  = After-tax income / (1 – Tax rate)
 = $900,000 / (1 – 0.40)
 = $900,000 / 0.60
 = $1,500,000

 Income taxes  = Pretax income × Tax rate
 = $1,500,000 × 0.40 = $600,000