Question

Learner Company wants to earn a net income of $250,000 next year. Product costs are as follows:

Direct materials per unit of product$60
Direct labor per unit of product$105
Variable overhead per unit of product$10
Total fixed factory overhead$600,000
Fixed selling and administrative expense totals $300,000. Learner Company has a tax rate of 35 percent.
Based on the given information, calculate the before-tax profit needed to achieve an after-tax target of $325,000.
a.$500,000
b.$200,000
c.$250,000
d.$400,000

Answer 1

To calculate the necessary before-tax profit to achieve an after-tax target of $325,000 with a tax rate of 35%, the formula Before-tax Profit = After-tax Profit / (1 - Tax Rate) is used, resulting in a before-tax profit requirement of $500,000.

Step-by-step explanation:

The student is asking how to calculate the before-tax profit needed to achieve a specific after-tax income target for Learner Company. The target after-tax profit provided by the student is $325,000, with a tax rate of 35%. To find the before-tax profit, we can use the following formula:

Before-tax Profit = After-tax Profit / (1 - Tax Rate)

Using this, the calculation would be:

Before-tax Profit = $325,000 / (1 - 0.35) = $500,000

Therefore, Learner Company would need to earn a before-tax profit of $500,000 to achieve an after-tax target of $325,000.