Ken Corporation is selling its product at unit price of $15, variable cost per unit is $7, fixed cost is $12,000 and it is subjected to 40 percent tax rate (includes federal and state income tax). The desired after tax profit is $3,000, the number of units required to be sold is:

Question

Quizplus · Accepted Answer

Desired Profit before tax = After Tax profit ÷ (1 - tax rate) = $3,000÷ (1 - 0.40) = $5,000
Contribution Margin per unit = $15 - $7 = $8
Sales volume for desired profit before tax of $5,000 (or $3,000 desired profit after tax) =
($5,000+$12,000) ÷ $8 = 2,125 units
Exercises

Ken Corporation Is Selling Its Product at Unit Price of $15