Question

Morino Corporation sells product W for $125 per unit, the variable cost per unit is $90, the fixed costs are $450,000, and Morino is in the 30% corporate tax bracket. What are the sales (dollars) required to earn a net income (after tax) of $25,000?

a. $1,249,020
b. $674,625
c. $1,734,693
d. $1,904,750

Answer 1

First, we need to calculate the contribution margin per unit:

Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = $125 - $90 = $35

Next, we can calculate the sales (in dollars) required to earn a net income of $25,000 after tax:

Sales = (Fixed costs + Desired net income) / (1 - Tax rate)

Sales = ($450,000 + $25,000) / (1 - 0.30)

Sales = $650,000 / 0.70

Sales = $928,571

Therefore, the answer is not listed. The closest answer is B) $674,625, which is the sales required to earn a net income of $10,000 after tax.