Question

Gary is a computer-savvy millennial. He started his own business of providing computer cleaning and minor repairs to people in the community for $27 per one-hour session. Other than having to pay $125 per year for a software license that helps him identify the issues on each device, his only other out-of-pocket cost is fuel to transport him to meetings with clients-about $2 per session. Gary would like to make $4,200 so he can pay off his car loan and save for a much-needed trip.

(a) How many cleaning/repair sessions does Gary need to provide to reach his before-tax profit goal this year? Number of sessions_______sessions.
(b) Gary's friend reminds him that hell have to pay taxes on any income that he earns. If Gary's tax rate is 30%, how many sessions will he need to provide if he still wants to earn after-tax profit of $4,200 ? Number of sessions_________sessions

Answer 1

Gary needs 173 sessions to reach his before-tax profit goal of $4,200. After accounting for a 30% tax rate, he needs to provide 245 sessions to achieve an after-tax profit of $4,200.

Step-by-step explanation:

The question involves Gary who is running a business offering computer cleaning and minor repairs. To calculate how many sessions Gary needs to reach his profit goal, we first need to account for his net income per session which is the amount he charges per session ($27) minus his costs per session (fuel: $2; software license: $125/year).

His net income per session is $27 - $2 = $25. However, the software license cost of $125 per year needs to be spread over the number of sessions he does in a year. Without knowing the exact number of sessions, we can't calculate this per session cost, but we can establish that his total yearly net income before considering the software license must be $4,200 plus $125 for the software license, equaling $4,325.

To determine the number of sessions needed to meet this total, divide $4,325 by the net income per session which is $25, resulting in 173 sessions (since we cannot have a fraction of a session, we'll need to round up to the nearest whole number).

In scenario (b), if Gary needs to account for taxes, we must first calculate his before-tax income by determining how much income would result in an after-tax profit of $4,200. Since he is taxed at 30%, the income he keeps is 70% (100% - 30%). Therefore, we divide his desired after-tax profit by 0.7 to account for the taxes. So, $4,200 / 0.7 = $6,000. Adding the software license of $125 makes it $6,125 total before-tax income needed. To get the number of sessions at $25 net income per session, he needs to divide $6,125 by $25, equaling 245 sessions (again, rounding up to the nearest whole number to ensure the target profit is met).