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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


Amount $

Sales 40,000 units @ $200 per unit


Less: Variable cost @ $140 per unit


Contribution margin


Less: Fixed cost


Pre-tax income


Less: Income tax @ 20%


After tax income


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