Sally Jones recently took over the presidency of J & J Products. The firm sells a single product for $30 per unit. Its cost function has been estimated as $200,000 per year plus $10 per unit. J & J Products is subject to a combined state and federal income tax rate of 35%.
Ms. Jones has been offered a bonus equal to 10% of the firm’s net income after tax. Sally has her eyes on a new car that will cost $36,000. Her personal tax rate will average 30%.

A. Determine the amount of bonus required so that Sally has $36,000 after paying her taxes on the bonus.
B. Determine how much after-tax income J & J will need for Sally to receive the bonus calculated in part (A).
C. Solve for the number of units sold for Sally to get her bonus.
D. In what ways might the bonus influence Sally's behavior as president of J & J?

  • CreatedJanuary 26, 2015
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