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Calculate the taxable income and income tax costs

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Reference no: EM132619810

Question - KTR Company earns a $14 profit on each unit of manufactured goods, and it sells 28 million units each year. KTR's income tax rate is 20 percent. However, the jurisdiction in which KTR operates just increased the tax rate to 25 percent for next year. KTR's owners are considering two alternatives. They could simply accept the $19.6 million tax increase as a reduction in their after-tax profit, or they could raise the price of each unit by 70 cents, thereby increasing the profit per unit to $14.70. However, the marketing department estimates that the price increase could reduce annual sales to 26.6 million units.

Required -

1. Calculate the taxable income, income tax costs, and after tax profit for each alternatives.

2. Which alternative is better for KTR's owners?

Reference no: EM132619810

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