Chapter 16, Problem 4CE

Olivian Company wants to earn $420,000 in net (after-tax) income next year. Its product is priced at $275 per unit. Product costs include:

Variable selling expense is $14 per unit; fixed selling and administrative expense totals $290,000. Olivian has a tax rate of 40 percent.

Required:

1. 1. Calculate the before-tax profit needed to achieve an after-tax target of $420,000.
2. 2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. (Round to the nearest unit.)
3. 3. Prepare an income statement for Olivian Company for the coming year based on the number of units computed in Requirement 2.
4. 4. What if Olivian had a 35 percent tax rate? Would the units sold to reach a $420,000 target net income be higher or lower than the units calculated in Requirement 3? Calculate the number of units needed at the new tax rate. (Round dollar amounts to the nearest dollar and unit amounts to the nearest unit.)