A product sells for $20 per unit,and has a contribution margin ratio of 40%.Fixed expenses total $120,000 annually.The company that makes and sells the product has an income tax rate of 40%.How many units must be sold to yield an after-tax operating profit of $30,000?

Question

Quizplus · Accepted Answer

To find the units required, calculate the before-tax profit needed: $30,000 / (1 - 0.40) = $50,000. Then, use the formula: (Fixed Expenses + Before-Tax Profit) / (Selling Price * Contribution Margin Ratio) = (120,000 + 50,000) / (20 * 0.40) = 21,250 units.

A Product Sells for $20 Per Unit,and Has a Contribution