The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50.Variable costs per unit are $3.86,while total fixed costs amount to $572,200.The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000.How many units must be sold to achieve the after-tax profit goal?
A)102,251
B)113,975
C)75,720
D)74,896

Question

Quizplus · Accepted Answer

First, we need to calculate the total after-tax profit needed which is:

After-tax profit = $209,000 / (1 - 30%) = $298,571.43

Next, we can use the contribution margin ratio to calculate the number of units that need to be sold:

Contribution margin ratio = (Selling price - Variable costs) / Selling price = ($11.50 - $3.86) / $11.50 = 0.6643

Using the contribution margin ratio, we can set up the equation:

(0.6643 x Sales) - $572,200 = $298,571.43

Solving for Sales, we get:

Sales = 113,975 units

Therefore, the best choice is B, 113,975 units must be sold to achieve the after-tax profit goal.

The Foggy Daze Company Sells a "One Size Fits All