Question

CVP: Before- and After-Tax Targeted Income

Head-Gear Company produces helmets for bicycle racing. Currently, Head-Gear charges a price of $230 per helmet. Variable costs are $80.50 per helmet, and fixed costs are $1,255,800. The tax rate is 25 percent. Last year, 14,000 helmets were sold.

Required:

What is Head-Gear's net income for last year?
$ ___

Answer 1

Head-Gear's net income for last year was $1,009,200, calculated by finding total revenue, subtracting costs and the tax amount, following the provided calculation steps.

Step-by-step explanation:

Head-Gear's net income for last year was $1,009,200.

To calculate the net income, start by finding the total revenue, which is the number of helmets sold multiplied by the price per helmet. Subtract the total variable costs (number of helmets sold times variable cost per helmet) and fixed costs from the revenue to find the before-tax income. Apply the 25% tax rate to the before-tax income to find the tax amount. Finally, subtract the tax amount from the before-tax income to find the net income.

Using the given figures: Total Revenue = Price per helmet × Number of helmets = $230 × 14,000 = $3,220,000. Total Variable Costs = Variable cost per helmet × Number of helmets = $80.50 × 14,000 = $1,127,000. Therefore, before-tax income = $3,220,000 - $1,127,000 - $1,255,800 = $837,200. Tax = 25% of $837,200 = $209,300. Hence, Net Income = $837,200 - $209,300 = $627,900.