This answer results from using the after-tax desired net income of $1,300,000 instead of its before-tax equivalent to calculate the needed volume. The after-tax net income must be converted to before-tax net income by dividing it by 1 ? the tax rate.
This answer results from dividing the desired before-tax net income by the contribution margin per unit. This omits consideration of fixed costs. The numerator needs to be the desired before-tax net income plus the fixed costs.
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The first step is to find what before-tax Income needs to be in order to achieve Carson’s goal of net after-tax income of $1.3 million. Before-tax income = After-tax income ÷ (1 – the tax rate). Therefore, before-tax Income = $1,300,000 ÷ .65, which is $2,000,000. Volume in units required to earn a specified profit is (Fixed Costs + Before-Tax Profit Desired) ÷ Contribution Margin Per Unit. The contribution margin per unit is the $100 selling price minus the $75 variable costs, or $25. Fixed cost is given as $250,000. The volume in units required to earn the desired profit is: ($250,000 + $2,000,000) ÷ $25 = 90,000 units.
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If Carson wants to achieve a net income of $1.3 million next year, its sales must be