Answer (B) is correct . Bidwell’s total contribution margin is $300,000 ($1,000,000 sales – $700,000 total variable costs), so its unit contribution margin (UCM) is $3 ($300,000 ÷ 100,000 units). Treating desired after-tax profit as an additional fixed cost allows the target unit sales to be calculated as follows: Target unit sales = {Fixed costs + [Target net income ÷ (1.0 – .40)]} ÷ UCM = [$210,000 + ($90,000 ÷ .60)] ÷ $3 = ($210,000 + $150,000) ÷ $3 = 120,000
Answer (A) is incorrect because Selling 100,000 units results from ignoring incomes.
Answer (C) is incorrect because Disregarding the $50,000 of selling and administrative costs in computing the contribution margin results in 102,858 units.
Answer (D) is incorrect because Using a 60% tax rate rather than a 40% tax rate results in 145,000 units.
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If the Bidwell Company is subject to an effective income tax rate of 40%, the number of units Bidwell must sell to earn an after-tax profit of $90,000 is