Assume the following cost information for Andrew Company: $\begin{array}{lr}
\text { Selling price per unit } & \$ 144 \
\text { Variable costs per unit } & \$ 80 \
\text { Total fixed costs } & \$ 80,000 \
\text { Tax rate } & 40 \%
\end{array}$ _____ must be sold to earn an after-tax net income of $40,800.
A)3,700 units
B)2,313 units
C)1,594 units
D)1,063 units

Question

Quizplus · Accepted Answer

To find the number of units needed to be sold to earn an after-tax net income of $40,800, we first need to calculate the target pre-tax income, since the net income given is after-tax. The formula to calculate the target pre-tax income is: $$ \text{Target Pre-Tax Income} = \frac{\text{Target Net Income}}{1 - \text{Tax Rate}} $$ Given that the target net income is $40,800 and the tax rate is 40%, the target pre-tax income is: $$ \text{Target Pre-Tax Income} = \frac{40,800}{1 - 0.4} = \frac{40,800}{0.6} = 68,000 $$ Next, to find the number of units needed to be sold to achieve this pre-tax income, we use the formula: $$ \text{Units} = \frac{\text{Total Fixed Costs} + \text{Target Pre-Tax Income}}{\text{Selling Price per Unit} - \text{Variable Costs per Unit}} $$ Plugging in the given values: $$ \text{Units} = \frac{80,000 + 68,000}{144 - 80} = \frac{148,000}{64} = 2,312.5 $$ Since we cannot sell half a unit, we round up to the next whole unit, resulting in 2,313 units needed to be sold to achieve the target after-tax net income of $40,800.

Assume the Following Cost Information for Andrew Company _____ Must Be Sold to Earn an After-Tax Net Income