# Determining the required level of activity to generate a target after-tax profit Assume the same…

Determining the required level of activity to generate a

target after-tax profit Assume the same facts as in Learning exercise 3.17,

except this time assume that the organisation has to pay income tax on its

profits, the tax rate is 30 per cent and the organisation wants to make an

after-tax profit of $140000. First of all, we need to convert the after-tax

profit into a pre-tax profit, to ensure that the profit figure used in the

subsequent calculation includes the tax component/amount. In this exercise,

this equates to a pre-tax profit of $140000 ÷ (1 _ tax rate) = $140000 ÷

0.7 = $200000.

Determining the required level of activity to generate a

target after-tax profit Assume the same facts as in Learning exercise 3.17,

except this time assume that the organisation has to pay income tax on its

profits, the tax rate is 30 per cent and the organisation wants to make an

after-tax profit of $140000. First of all, we need to convert the after-tax

profit into a pre-tax profit, to ensure that the profit figure used in the

subsequent calculation includes the tax component/amount. In this exercise,

this equates to a pre-tax profit of $140000 ÷ (1 _ tax rate) = $140000 ÷

0.7 = $200000. We can now factor this profit figure into our calculation

regarding the required level of activity

Note that we have a profit figure greater than $140000

because we needed to round up to the nearest full bale of wool.