Framing House, Inc. produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame.

The sales dollars required by Framing House to make an after-tax profit (πA) of $10,000, given an income tax rate, t, of 20 percent, would be (round intermediate calculation(s) to nearest whole number):

Question

Framing House, Inc. produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame.

The sales dollars required by Framing House to make an after-tax profit (πA) of $10,000, given an income tax rate, t, of 20 percent, would be (round intermediate calculation(s) to nearest whole number):

Quizplus · Accepted Answer

To find the sales dollars required to make an after-tax profit of $10,000 with a 20% tax rate, first calculate the before-tax profit needed. The formula for after-tax profit (πA) is πA = πB(1 - t), where πB is the before-tax profit and t is the tax rate. Rearranging the formula to solve for πB gives πB = πA / (1 - t). Substituting the given values, πB = $10,000 / (1 - 0.20) = $10,000 / 0.80 = $12,500. This is the before-tax profit needed.Next, calculate the total costs, which include both variable and fixed costs. The break-even point in sales dollars (S) can be found using the formula S = (Variable Cost per Unit * Quantity) + Fixed Costs + πB. However, since we don't have the quantity and are looking for sales dollars directly, we use the contribution margin approach. The contribution margin per unit is the selling price minus the variable cost per unit, which is $25 - $17 = $8.The total costs needed to achieve the before-tax profit include the fixed costs plus the before-tax profit, which is $130,000 + $12,500 = $142,500. To find the required sales dollars, divide the total needed costs by the contribution margin ratio (contribution margin per unit / selling price per unit). The contribution margin ratio is $8 / $25 = 0.32.Finally, the required sales dollars = $142,500 / 0.32 = $445,312.5, which rounds to $445,325.