If a company desires a $300,000 after-tax profit, and has a tax rate of 40%, how...
If a company desires a $300,000 after-tax profit, and has a tax rate of 40%, how much before-tax income should be used in the CVP calculation?
Homework Answers
| CALCULATION OF BEFORE TAX INCOME | |||
| After Tax Profit | $ 300,000 | ||
| Tax Rate | 40% | ||
| After Tax Profit = | Net income | - | Tax Rate |
| After Tax Profit = | 100% | - | 40% |
| After Tax Profit = | 60% | ||
| So if the tax rate is 40% than after tax profit is 60% . | |||
| Before tax Income = ( $ 300,000 X 100) / 60 | |||
| Before tax Income = | $ 500,000 | ||
| As per above calculation, | |||
| $ 500,000 income is taken before tax | |||
| Answer = Before tax income = $ 500,000 | |||
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Direct labor
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Variable overhead
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Cornerstone Exercise 16.4 (Algorithmic)
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Olivian Company wants to earn $360,000 in net (after-tax) income
next year. Its product is priced at $400 per unit. Product costs
include:
Direct materials
$120.00
Direct labor
$88.00
Variable overhead
$20.00
Total fixed factory overhead
$440,000
Variable selling expense is $16 per unit; fixed selling and
administrative expense totals $290,000. Olivian has a tax rate of
40 percent.
Required:
1. Calculate the before-tax profit needed to
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