Question

Robin Company wants to earn a 6% return on sales after taxes. The company’s effective income tax rate is 40%, and its contribution margin is 30%. If Robin has fixed costs of $240,000, the amount of sales required to earn the desired return is

Answer 1

Answer is 1,200,000

Step-by-step explanation:

return on sales after taxes = 6%

effective income tax rate = 40%, contribution margin = 30%.

Robin has fixed costs = $240,000,

We are to find the amount of sales required to earn the desired return using the information above.

Profit = Contribution - Fixed Cost

Assuming sales = K

6/(100-40)K = (30/100)K -240,000

0.1K =0.3K -240,000

0.2K =240,000

K = 240,000/0.2

so K =1,200,000.