The Patterson Company is subject to income taxes of 20% on income through $25,000 and 40% on income in excess of $25,000. Projected information for next year follows: Selling price per unit $40
Variable costs per unit $15
Fixed costs $400,000
Sales in units 20,000
What is Patterson's projected after-tax profit?

Question

Quizplus · Accepted Answer

To find the after-tax profit, first calculate the total revenue (20,000 units * $40 = $800,000) and total variable costs (20,000 units * $15 = $300,000). Subtract variable costs and fixed costs from total revenue to get pre-tax profit: $800,000 - $300,000 - $400,000 = $100,000. The first $25,000 is taxed at 20% ($5,000 tax), and the remaining $75,000 is taxed at 40% ($30,000 tax). Total tax is $35,000. Subtract tax from pre-tax profit: $100,000 - $35,000 = $65,000.

The Patterson Company Is Subject to Income Taxes of 20