AMJ Inc. is currently selling two apps on the Apple app store. The lite version

Question

AMJ Inc. is currently selling two apps on the Apple app store. The lite version sells for $1 and the premium version sells for $3. The app store commission is 30% of sales and the total fixed costs to host the server, pay part time support staff salaries, rent, and other admin costs amount to $76,000 annually AMJ Inc. is in the 25% tax bracket and this year, investors want to make an after tax profit (net income) of $210,000 since they aren't taking any other salary from the business Based on market research, AMJ estimates that it will be able to sell 5 lite apps for every 2 premium apps sold. Thus the sales mix is expected to be 5:2 How many apps in total will have to be sold to achieve the target income?

Explanation / Answer

PAT=210000

Tax=25%

PBT=210000/75%=280000

Fixed cost=76000

So, Income after subtracting commission=280000+76000=356000

If total sales revenue=x

x-0.3x=356000

x=356000/0.7=$508571.42

Total sales Revenue=$508571.42

If total units sold is y

Sale of lite units=5Y/7

Sale of premium app=2Y/7

Revenue from Lite=$5Y/7

Revenue from Premium=6Y/7

Now,

5Y/7+6y/7=356000

Or,Y=356000*7/13=191692.3 units

Hence, approximately total 191693 units need to be sold

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