Environmental Plus Consulting provides environmental safety consulting evaluations for clients at a price of $10,000 upon completion. Environmental Plus has variable costs of $5,000 per evaluation and fixed costs of $1,800,000 per year. Environmental Plus has an effective tax rate of 30%. If company management wants to reach a net income goal of $50,000 next month, approximately how many safety evaluations will the firm need to complete?

Question

Quizplus · Accepted Answer

If Environmental Plus wishes to achieve a net income goal of $50,000 and the firm's tax rate is 30%, then its pretax operating income level willneed to be $50,000 ÷ (1 minus the tax rate of 30%) = $50,000 ÷ 70% = $71,429. Target pretax income of $71,429 + fixed costs of ($1,800,000 per yeardivided by 12 or) $150,000 = $221,529. $221,529 ÷ the contribution margin of ($10,000 - $5,000), or $5,000 per evaluation = 44.3.

Environmental Plus Consulting Provides Environmental Safety Consulting Evaluations for Clients