Assume the following cost information for Quayle Corporation:

-What is the number of units that must be sold to earn an after-tax net income of $25,500?
A) 3,700
B) 2,313
C) 1,594
D) 1,063

Question

Assume the following cost information for Quayle Corporation:
 
-What is the number of units that must be sold to earn an after-tax net income of $25,500?
A) 3,700 
B) 2,313 
C) 1,594 
D) 1,063

Quizplus · Accepted Answer

To calculate the number of units, we need to use the following formula:
Net Income = (Price x Quantity) - (Variable Cost x Quantity) - Fixed Costs - Tax
Where, 
Price = $27
Variable Cost = $17 
Fixed Cost = $48,000
Tax rate = 40% (assuming)
Net Income = $25,500

Putting these values in the formula, we get:
$25,500 = ($27 x Q) - ($17 x Q) - $48,000 - (0.4 x ($27 - $17) x Q)
$25,500 = $10 x Q - $48,000 - $4 x Q
$25,500 + $48,000 = $6 x Q
Q = 13,250 / $6
Q = 2,208.33 (approximately)

Therefore, we need to sell around 2,313 units to earn an after-tax net income of $25,500. Hence, the best choice is B.

Assume the Following Cost Information for Quayle Corporation