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Required: a. Calculate the taxable income, income tax costs, and after tax profit for each alternatives. b. Which alternative is better for KTR's owners?

Required: a. Calculate the taxable income, income tax costs, and after tax profit for each alternatives. b. Which alternative is better for KTR's owners?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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KTR Company earns a $10 profit on each unit of manufactured goods, and it sells 20 million units each year. KTR's income tax rate is 20 percent. However, the jurisdiction in which KTR operates just increased the tax rate to 22 percent for next year. KTR's owners are considering two alternatives. They could simply accept the $4 million tax increase as a reduction in their after-tax profit, or they could raise the price of each unit by 20 cents, thereby increasing the profit per unit to $10.20. However, the marketing department estimates that the price increase could reduce annual sales to 19 million units. Required: a. Calculate the taxable income, income tax costs, and after tax profit for each alternatives. b. Which alternative is better for KTR's owners? Complete this question by entering your answers in the tabs below. Required A Required B Calculate the taxable income, income tax costs, and after tax profit for each alternatives. Note: Enter your answers in dollars not in millions of dollars. Taxable income Income tax costs After tax profit Alternative 1 Alternative 2 < Required A Required B >
Transcribed Image Text:KTR Company earns a $10 profit on each unit of manufactured goods, and it sells 20 million units each year. KTR's income tax rate is 20 percent. However, the jurisdiction in which KTR operates just increased the tax rate to 22 percent for next year. KTR's owners are considering two alternatives. They could simply accept the $4 million tax increase as a reduction in their after-tax profit, or they could raise the price of each unit by 20 cents, thereby increasing the profit per unit to $10.20. However, the marketing department estimates that the price increase could reduce annual sales to 19 million units. Required: a. Calculate the taxable income, income tax costs, and after tax profit for each alternatives. b. Which alternative is better for KTR's owners? Complete this question by entering your answers in the tabs below. Required A Required B Calculate the taxable income, income tax costs, and after tax profit for each alternatives. Note: Enter your answers in dollars not in millions of dollars. Taxable income Income tax costs After tax profit Alternative 1 Alternative 2 < Required A Required B >
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