Question

A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses total $120,000 annually. The company that makes and sells the product has an income tax rate of 40%. How many units must be sold to yield an after-tax operating profit of $30,000?

Answer 1

Units must be sold to yield an after-tax operating profit of $30,000 should be 21,250 units

Description	Amount ($)
Sales	20.00
Less: Variable Cost	12.00
Contribution Margin (b)	8.00
Less: Fixed Cost	120,000
After Tax operating Income	30,000
Before tax operating Income (30,000/.6)	50,000
Operating Income	50,000
Sale units (Target Profit+ Fixed Costs)/ Contribution Margin per unit	21,250
Check
Description	Amount ($)
Sales	425,000
Less: Variable Cost	255,000
Contribution Margin (b)	170,000
Less: Fixed Cost	120,000
Before tax operating Income	50,000
Less: tax 40%	20,000
Operating Income	30,000