Question

Last year Firm X had sales of $100,000, labor costs of $30,000, material costs of $30,000, and depreciation of $10,000. Assume that labor and material costs were paid in cash. The tax rate on its net income was 40%. What was the firm's net income?

Answer 1

Firm X's net income is calculated by subtracting the labor costs, material costs, depreciation, and taxes from the sales. The net income after taxes is found to be $18,000.

Step-by-step explanation:

To calculate the firm's net income, we need to consider the company's sales, costs, depreciation, and taxes. The formula for net income is:

Net Income = Sales - Labor Costs - Material Costs - Depreciation - Taxes

Let's apply the formula with the provided data:

1. Sales = $100,000
2. Labor Costs = $30,000
3. Material Costs = $30,000
4. Depreciation = $10,000
5. Taxes = 40% of (Sales - Labor Costs - Material Costs - Depreciation)

First, we need to calculate the pre-tax income:

Pre-Tax Income = $100,000 - $30,000 - $30,000 - $10,000

Pre-Tax Income = $30,000

Next, we calculate the taxes:

Taxes = 40% of $30,000 = $12,000

Finally, we find the net income:

Net Income = $30,000 - $12,000 = $18,000

Therefore, Firm X's net income after taxes was $18,000.