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The Cannes Company has the following information available: Total fixed costs $400,000 Expected...

Question:

The Cannes Company has the following information available:

Total fixed costs $400,000

Expected sales (units) 100,000

Contribution margin per unit $7.50

Tax Rate 30% What is the after- tax net income?

A.) 245,000

B.) 280,000

C.) 350,000

D.) 400,000

Calculate After-Tax Net Income Using Contribution Analysis

One of the key features of contribution margin analysis is once a company has analyzed and quantified the selling price or the average selling price of a product, the variable costs required to produce and to sell the product, and also quantifies the total fixed costs, it is possible to quickly estimate or calculate the break-even point in units and in total dollar sales. In this particular question stem, we are provided with the contribution margin per unit, and from that point, we can quickly calculated the profit before taxes and after-tax net income.

Answer and Explanation: 1

The Cannes Company has the following information available:

Total fixed costs $400,000

Expected sales (units) 100,000

Contribution margin per unit $7.50

Tax Rate 30% What is the after- tax net income?

A.) 245,000

B.) 280,000

C.) 350,000

D.) 400,000

The correct answer is answer choice A.) 245,000


If the expected sales in units are 100,000, and the contribution margin per unit is $7.50, this means the total contribution margin is 100,000 units * $7.50 per unit = $750,000 - fixed costs of $400,000 = profit before taxes of $350,000.

Multiply the profit before taxes of $350,000 * (1 - tax rate of .30) = $350,000 * .70 = $245,000.


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Break-Even Analysis: Definition & Example

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Chapter 4 / Lesson 3
11K

A break-even analysis utilizes a price calculation formula to determine how much product a business must sell and at what price in order to make a profit. Learn how to apply this analysis through examples with fixed and variable costs, and discover the importance of a margin of safety.


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