(a) Calculate the number of units need to make and sell each year to earn an after-tax profit of $250,000. (b) Calculate number of units need to make and sell each year to earn an after-tax profit of $250,000 if royalty is paid to supplier Alpha. (c) Calculate number of units need to make and sell each year to earn an after-tax profit of $250,000 if royalty is paid to supplier Beta.
The Production Manager of Bright (USA) Inc., Ronnie Stewart provided information about the subsidiary’s annual fixed costs of $850,000. For a new product to be manufactured known as Robotec, its selling price will $8.50 with variable cost of $0.20. The combined state and federal tax rate currently is 30 percent.
Ronnie is wondering on the number of units need to make and sell each year to earn an after-tax profit of $250,000.
At the same time, Ronnie is facing a situation where he is considering 2 options:
Option 1: To pay royalty to supplier Alpha of 10%.
Option 2: To pay royalty of 6.5% to supplier Beta, but, in this option the variable cost will increase to $0.25.
In both situations, Ronnie is clueless on the number of units the company must make and sell to generate $250,000 profit after taxes.
For Robotec;
(a) Calculate the number of units need to make and sell each year to earn an after-tax profit of $250,000.
(b) Calculate number of units need to make and sell each year to earn an after-tax profit of $250,000 if royalty is paid to supplier Alpha.
(c) Calculate number of units need to make and sell each year to earn an after-tax profit of $250,000 if royalty is paid to supplier Beta.
(d) Recommend which is better, to engage supplier Alpha or supplier Beta
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