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 dollars required to make an after-tax profit (πA) for Kelvin Co. of $15,000, given an income tax rate of 40%, are calculated to be:

Question

Quizplus · Accepted Answer

To find the sales dollars required, first calculate the before-tax profit needed: πB = πA / (1 - tax rate) = $15,000 / (1 - 0.4) = $25,000. The contribution margin per pair is $6 - $4 = $2. The break-even point in units is (Fixed Costs + πB) / Contribution Margin = ($90,000 + $25,000) / $2 = 57,500 pairs. The sales dollars required are 57,500 pairs * $6 = $345,000.

Kelvin Co Produces and Sells Socks