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10 September, 03:47

In 2019, X Company's profit function was 0.31R - $89,000, where R is revenue. In 2020, the relationship between revenue and variable costs will not change, but fixed costs will increase by $16,020. Assuming a tax rate of 35%, what will revenue have to be in order for X Company to earn $33,200 after taxes in 2020?

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  1. 10 September, 03:53
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    Revenue = $503,538.46

    Explanation:

    Giving the following information:

    In 2019, X Company's profit function was 0.31R - $89,000, where R is revenue. In 2020, the relationship between revenue and variable costs will not change, but fixed costs will increase by $16,020.

    Tax rate = 35%

    Desired profit = 33,200

    X = 0.31R - (89,000+16,020) = 0.31R - 105,020

    We need to incorporate the effect of the tax rate:

    X = [ (0.31R - 105,020) * (1-t) ]

    33,200 = [ (0.31*R) - 105,020] * (1-0.35)

    33,200/0.65 = 0.31R - 105,020

    51,076.92 + 105,020 = 0.31R

    503,538.46 = R
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