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tsmith86
Nov 1, 2005, 05:58 PM
Can someone please help me with the following problem.
-Martha Products, Inc. desires to earn an after-tax income of $250,000. It has fixed costs of $1,000,000, a unit sales price of $500, and unit variable costs of $200. The company is in the 30% tax bracket.
1. How many dollars of sales revenue must be earned to achieve the after-tax profit of $250,000?
2. How many dollars of revenue would have to be earned to achieve the $250,000 of profit, if there had been no income tax?

CaptainForest
Nov 9, 2005, 03:39 PM
1) How many dollars of sales revenue must be earned to achieve the after-tax profit of $250,000?

Revenue 500x
Variable Costs 200x
300x

Therefore, 300x = 1,357,142
X = 4524 units

Contribution Margin 1,357,142 (1,000,000+ 357,142)

Fixed Costs 1,000,000
Income Before Tax 357,142 (250,000 / 0.7)
Tax (30%)
Income After Tax 250,000

Total Sales Revenue = 4524 x 500 = $2,262,000



2. How many dollars of revenue would have to be earned to achieve the $250,000 of profit, if there had been no income tax?

Revenue 500x
Variable Costs 200x
300x

Therefore, 300x = 1,250,000
X = 4167 units

Contribution Margin 1,250,000 (1,000,000+ 250,000)

Fixed Costs 1,000,000
Income Before Tax 250,000
Tax (0%)
Income After Tax 250,000


Total Sales Revenue = 4167 x 500 = $2,083,500