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This is a company's current budget:Selling price 20Volume           40,000Variable cost per unit                  12Fixed costs          200,000Operating income          120,000Income tax rate 30%Net income           84,000What selling price would generate the company a "Net Income" of $150,000?[You must round up your answer to the nearest whole dollar, and do not enter dollar signs ($) or comma's]

Question

This is a company's current budget:Selling price 20Volume           40,000Variable cost per unit                  12Fixed costs          200,000Operating income          120,000Income tax rate 30%Net income           84,000What selling price would generate the company a "Net Income" of 150,000?[Youmustroundupyouranswertothenearestwholedollar,anddonotenterdollarsigns(150,000?[You must round up your answer to the nearest whole dollar, and do not enter dollar signs () or comma's]

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Solution

To calculate the new selling price that would generate a net income of $150,000, we first need to calculate the new operating income that would result in this net income.

  1. First, divide the desired net income by (1 - tax rate) to find the new operating income. So, 150,000/(10.30)=150,000 / (1 - 0.30) = 214,286.

  2. Next, calculate the total variable costs by multiplying the variable cost per unit by the volume. So, 1240,000=12 * 40,000 = 480,000.

  3. Add the total variable costs to the fixed costs to find the total costs. So, 480,000+480,000 + 200,000 = $680,000.

  4. Subtract the total costs from the new operating income to find the total revenue needed. So, 214,286214,286 - 680,000 = -$465,714.

  5. Finally, divide the total revenue needed by the volume to find the new selling price. So, -465,714/40,000=465,714 / 40,000 = -11.64.

However, since the selling price cannot be negative, it's not possible to generate a net income of $150,000 with the given costs and volume.

This problem has been solved

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