Blanchard Company manufactures a single product that sells for $136 per unit and

Question

Blanchard Company manufactures a single product that sells for $136 per unit and whose total variable costs are $102 per unit. The companys annual fixed costs are $626,000. The sales manager predicts that annual sales of the companys product will soon reach 39,600 units and its price will increase to $196 per unit. According to the production manager, the variable costs are expected to increase to $136 per unit but fixed costs will remain $626,000. The income tax rate is 40%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

Blanchard Company manufactures a single product that sells for $136 per unit and whose total variable costs are $102 per unit. The companys annual fixed costs are $626,000. The sales manager predicts that annual sales of the companys product will soon reach 39,600 units and its price will increase to $196 per unit. According to the production manager, the variable costs are expected to increase to $136 per unit but fixed costs will remain $626,000. The income tax rate is 40%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

Explanation / Answer

Hi,

Please find the answer as follows:

Thanks.

Amount Sales (39600*196) 7761600 Less Variable Costs (39600*136) 5385600 Contribution 2376000 Less Fixed Costs 626000 PreTax Income 1750000 Less Taxes (1750000*40%) 700000 After Tax Income 1050000

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