The pre-tax profit required is calculated as the after-tax profit required divided by 1 minus the tax rate. This answer results from calculating the pre-tax profit required by dividing by the tax rate, not by 1 minus the tax rate.
This is the number of units that the company must sell in order to breakeven. At this level of sales, there will be no profit.
When the target profit is a fixed dollar amount, the pre-tax profit requirement is treated as an additional fixed cost in the breakeven calculation. With a tax rate of 40%, the pre-tax profit that will be needed to have $2,400,000 of after-tax profit is $4,000,000 ($2,400,000 divided by 1 ? the tax rate). This is added to the $15,000,000 in fixed costs to give a total "fixed" cost that must be covered of $19,000,000. The contribution per unit is $1,000, calculated as the selling price minus variable costs per unit ($3,000 minus $2,000). The number of units needed to have $2,400,000 of after-tax profit is 19,000, calculated as $19,000,000 ÷ $1,000.
This answer choice did not calculate the pre-tax profit requirement properly. It results from multiplying the after-tax profit required by 1 minus the tax rate instead of by dividing the after-tax profit required by 1 minus the tax rate.
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