Question

Stewart Company The following information relates to financial projections of Stewart Company: Projected sales 60,000 units...

Stewart Company The following information relates to financial projections of Stewart Company: Projected sales 60,000 units Projected variable costs $3.00 per unit Projected fixed costs $40,000 per year Projected unit sales price $7.00 If Stewart Company's tax rate is 40%, how many units would Stewart Company need to sell (target income volume) to earn an after-tax profit of $6,000?

Choose the closest answer.

A.

12,950
B.

13,877
C.

12,500
D.

13,333
Business   Accounting   
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Homework Answers

Answer #1

Answer is "C"

Working Notes:

1. Requried Sales in Units = (Requried Profit + Fixed Cost + Tax Expenes) / Contibution Per Unit

2.Tax Expenes is 40% i.e., Income after Tax is 6000 which is Equal to 60% of Total Income before tax.

Therefore Tax expense will be 6000*40% / 60% = 4000

Total Income Before tax was 6000+4000= 10,000

3. Contribution per unit = slaes price per unit - Variable cost per unit = 7-3 = 4

4. SALES in Units = (6000+40000+4000) / 4 = 12,500 Units

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