Question

A company sells headbands to retailers for $5.50. The variable cost of per headband is $2.70, with a selling commission of 11.75% of sales. Fixed costs total $39,400. The income tax rate is 30%. What are the target sales (in number of headbands) to generate an after-tax income of $3,380? Question 6 options: 19,509 20,023 20,536 21,049 21,563

Answer 1

Given about a company,

Selling price S = $5.5

Variable cost VC = $2.70

Selling commission paid = 11.75% of sales

So, Selling commission per unit = 11.75% of 5.5 = $0.6463

So, Contribution margin per product = S - VC - commission per product = 5.5 - 2.7 - 0.6463 = $2.1537

fixed costs FC = $39400

Tax rate T = 30%

Target after-tax income = $3380

So, target before tax income = after-tax income/(1-T) = 3380/(1-0.3) = $4828.5714

Let quantity sold be X

So, we know that before-tax income = Contribution margin*quantity sold - Fixed cost

=> 4828.5714 = 2.1537*X - 39400

=> X = 20536 units

So, Target sales to generate required after-tax profit is 20536 units

Option C is correct.