Smith Oil Co. expects sales of $1,000,000 and total variable costs of $600,000 for 2016. Total budgeted fixed costs are $200,000. What is the dollar amount of sales necessary to achieve pre-tax profits of $400,000?
A) $2,000,000
B) $1,200,000
C) $1,500,000
D) $1,000,000

Question

Quizplus · Accepted Answer

To determine the dollar amount of sales necessary to achieve pre-tax profits of $400,000, we can use the formula:

Net Income = Sales - Total Variable Costs - Total Fixed Costs

Rearranging the formula to solve for sales, we get:

Sales = Net Income + Total Variable Costs + Total Fixed Costs

Plugging in the given values, we have:

Sales = $400,000 + $600,000 + $200,000
Sales = $1,200,000

Therefore, the dollar amount of sales necessary to achieve pre-tax profits of $400,000 is $1,200,000. Choice C is the correct answer.