Artem CPA Accounting LLP provides standard financial statement review services for clients at a price of $25,000. Artem has variable costs of $13,000 per review and fixed costs of $120,000 per month. Last month, Artem had an operating profit of $36,000. Artem has an effective tax rate of 30%. If Artem would like to attain its net income after-tax goal of $84,000 next month, how many audits will the firm need to conduct?

Question

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If Artem wishes to achieve its net income after-tax goal of $84,000 and the firm's tax rate is 30%, then its pretax operating income level will needto be $84,000 ÷ (1 F1F1F1S1?F1F1F10 the tax rate of 30%) = $84,000 ÷ 70% = $120,000. Target income of $120,000 + fixed costs of $120,000 = $240,000. Dividing thisamount by the contribution margin of $12,000 ($25,000 sales F1F1F1S1?F1F1F10 $13,000 variable expenses) yields the number of audits: $240,000 ÷ $12,000 = 20 audits.Artem will need to conduct 20 audits next month to achieve its net income goal.

Artem CPA Accounting LLP Provides Standard Financial Statement Review Services