- This topic has 2 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Hello fellow students,
Part a working 7 in calculating additional tax, contributions and opportinity cost. Could anybody tell how the additional contributions of 34, 63, 140 and 184 in year 1, 2, 3 and 4 was arrived at. It will be a great help. ThanksThese values represent the after-tax profit that Tramont Co has earned from selling the component to the Gamala operation.
The profit (contribution) is $4 per component but is subject to inflation within the US at 3% per year.
In year 1 12,000 components are sold generating $4 each, a contribution of $48,000
This is then subject to tax in the US at 30% leaving an after tax profit of $33,600 which when rounded to the nearest $000 gives $34.In year 2 you must apply 1 year of inflation so the component is producing a contribution of $4.12. Then multiply by the 22,000 sold to get a total contribution of $90,640 and deduct 30% tax leaving $63,448 or to the nearest $000 $63
In year 3 you must apply 2 years of inflation to the price (or at 1 year to the year 2 price) which gives $4.2436. Multiply by the volume sold (47,000) and deduct tax to give $139,614 or $140 to the nearest $000.
Year 4 [I think you know the routine] 3 years inflation in the price is $4.370908. The sales volume is 60,000 = $262,254. If you then apply 30% tax it bring it down to $183,578 or $184 to the nearest $000.
- You must be logged in to reply to this topic.