Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q13E

Expert-verified
Financial & Managerial Accounting
Found in: Page 837
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company’s annual fixed costs are $562,500. The sales manager predicts that annual sales of the company’s product will soon reach 40,000 units and its price will increase to $200 per unit. According to the production manager, variable costs are expected to increase to $140 per unit, but fixed costs will remain at $562,500. The income tax rate is 20%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes? (Hint: Prepare a forecasted contribution margin income statement as in Exhibit 18.21.)

The business entity generates a pre-tax and after-tax profit of $1,837,500 and $1,470,000 respectively.

See the step by step solution

Step by Step Solution

Step 1: Definition of Net Income

The net income is the income generated by a business entity after deducting every expense incurred like the Cost of goods sold, depreciation, taxes, etc., from the sales revenue.

Step 2: Forecasted contribution margin income statement

Particular

Amount $

Sales 40,000 units @ $200 per unit

$8,000,000

Less: Variable cost @ $140 per unit

(5,600,000)

Contribution margin

2,400,000

Less: Fixed cost

(562,500)

Pre-tax income

1,837,500

Less: Income tax @ 20%

(367,500)

After tax income

$1,470,000

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.