Kelvin Co. produces and sells socks. Variable costs are budgeted at $4 per pair, and fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair.
The sales units required for Kelvin Co. to make an after-tax profit (πA) of $15,000, given an income tax rate of 40%, are:

Question

Quizplus · Accepted Answer

First, calculate the after-tax profit needed before taxes: $15,000 / (1 - 0.40) = $25,000. Then, calculate the total profit needed (including fixed costs): $25,000 + $90,000 = $115,000. The contribution margin per unit is $6 - $4 = $2. Finally, divide the total profit needed by the contribution margin per unit: $115,000 / $2 = 57,500 units.

Kelvin Co Produces and Sells Socks