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 ) or comma's]
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.
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First, divide the desired net income by (1 - tax rate) to find the new operating income. So, 214,286.
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Next, calculate the total variable costs by multiplying the variable cost per unit by the volume. So, 480,000.
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Add the total variable costs to the fixed costs to find the total costs. So, 200,000 = $680,000.
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Subtract the total costs from the new operating income to find the total revenue needed. So, 680,000 = -$465,714.
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Finally, divide the total revenue needed by the volume to find the new selling price. So, -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.
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