Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans.Last year,the shirts sold for $7.50 each,and the variable cost to manufacture them was $2.25 per unit.The company needed to sell 20,000 shirts to break even.The after tax net income last year was $5,040.Donnelly's expectations for the coming year include the following: (CMA adapted) • The sales price of the T-shirts will be $9.• Variable cost to manufacture will increase by one-third.• Fixed costs will increase by 10%.• The income tax rate of 40% will be unchanged.Based on a $10 selling price per unit and if Donnelly Corporation wishes to earn $37,800 in after tax net income for the coming year,the company's sales volume in dollars must be:

Question

Quizplus · Accepted Answer

To earn $37,800 in after-tax net income, Donnelly Corporation needs to generate a before-tax net income of:

Before-tax net income = After-tax net income / (1 - Tax rate)
Before-tax net income = $37,800 / (1 - 0.4)
Before-tax net income = $63,000

To calculate the sales volume, we can use the contribution margin ratio (CM ratio).

CM ratio = (Sales price - Variable cost) / Sales price

Using the information given in the question stem, the new CM ratio is:

CM ratio = ($10 - $3) / $10
CM ratio = 0.7

To generate $63,000 in before-tax net income, the company needs to generate a contribution margin of:

Contribution margin = CM ratio * Sales volume

Substituting the values, we get:

$63,000 = 0.7 * Sales volume
Sales volume = $90,000

To find the sales volume in units, we can divide the total sales volume by the selling price per unit:

Sales volume in units = $90,000 / $10 = 9,000 units

Therefore, the company's sales volume in dollars must be $255,000 (9,000 units * $10 per unit).

Donnelly Corporation Manufactures and Sells T-Shirts Imprinted with College Names