Question

ABC COMPANY

Units sold 20,000
Selling price $30 per unit
Variable costs $22 per unit
Total fixed costs $140,000
Tax rate 40%
For ABC COMPANY, how many units have to be sold in order to earn an after‑tax net income of $18,000?
a. 21,750
b. 21,000
c. 21,250
d. 21,500

Answer 1

To earn an after-tax net income of $18,000, ABC COMPANY needs to sell 21,750 units.

Step-by-step explanation:

To calculate the number of units that need to be sold in order to earn an after-tax net income of $18,000, we need to consider the contribution margin per unit. The contribution margin is the selling price per unit minus the variable cost per unit, which in this case is $30 - $22 = $8.

To find the break-even point, we can use the formula:

Break-even point (in units) = (Fixed Costs + Target Profit) / Contribution Margin

Substituting the given values, (140,000 + 18,000) / 8 = 21,750 units. Therefore, the correct answer is option a. 21,750 units.