Your firm plans to earn $2,600,000 after taxes next year

Finance Dec 22, 2020

Your firm plans to earn $2,600,000 after taxes next year. Sales will be $18,000,000. Your firm manufactures truck components which sell for $1,200 each. Your firm has a 60% contribution margin, a 35% tax rate, and no outstanding debt. What are next year's expected fixed costs?

Expert Solution

Contribution margin ratio=Contribution margin/Sales

Contribution margin=(18,000,000*60%)

=$10,800,000

Contribution margin	10,800,000
Less:Fixed costs(balance)(10,800,000-4,000,000)	$6,800,000
EBT(100%)(2,600,000/0.65)	4,000,000
Less:taxes@35%(4,000,000*35%)	1,400,000
Net income(65%)	2,600,000

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