After-Tax Profit Targets Olivian Company wants to earn $300,000 in net (after-tax) income next year. Its product is priced at $300 per unit. Product costs include: Direct materials $90.00 Direct labor $66.00 Variable overhead $15.00 Total fixed factory overhead $405,000 Variable selling expense is $12 per unit; fixed selling and administrative expense totals $255,000. Olivian has a tax rate of 40 percent. Required: 1. Calculate the before-tax profit needed to achieve an after-tax target of $300,000. $fill in the blank 9853e801101c04e_1 2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. If required, round your answer to the nearest whole unit. fill in the blank 9853e801101c04e_2 units Feedback

1. Before-tax profit = $500,000

2. Number of units that will yield the operating income = 9,915 units

Explanation:

1. Calculate the before-tax profit needed to achieve an after-tax target of $300,000.

This can be calculated as follows:

After-tax target = Before-tax profit * (100% - Tax rate) ……………….. (1)

Substituting the relevant values into equation (1) and solve for Before-tax profit, we have:

$300,000 = Before-tax profit * (100% - 40%)

$300,000 = Before-tax profit * 60%

Before-tax profit = $300,000 / 60%

Before-tax profit = $500,000

2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. If required, round your answer to the nearest whole unit.

This can be calculated as follows:

Contribution margin = Selling price per unit - Direct materials per unit - Direct labor per unit - Variable overhead per unit - Variable selling expense per unit = $300 - $90 - $66 - $15 - $12 = $117

Before-tax profit = (Contribution margin * Number of units that will yield the operating income) - Total fixed factory overhead - Fixed selling and administrative expense ………………. (2)

Substituting the relevant values into equation (2) and solve for Number of units that will yield the operating income, we have:

$500,000 = ($117 * Number of units that will yield the operating income) - $405,000 - $255,000

$500,000 + $405,000 + $255,000 = $117 * Number of units that will yield the operating income

$1,160,000 = $117 * Number of units that will yield the operating income

Number of units that will yield the operating income = $1,160,000 / $117 = 9,914.52991452991

Rounding to the nearest whole unit, we have:

Number of units that will yield the operating income = 9,915 units

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