Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution margin per unit of $4.What are the sales dollars required to earn a target net income of $50,000 assuming a tax rate of 20%?

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Quizplus · Accepted Answer

First, calculate the target net income before taxes by dividing the target net income by (1 - tax rate): $50,000 / (1 - 0.20) = $62,500. Then, add the fixed costs to find the total contribution margin needed: $62,500 + $160,000 = $222,500. Finally, divide the total contribution margin by the contribution margin per unit to find the sales dollars required: $222,500 / ($4 / $10) = $556,250, where $10 is the selling price per unit derived from adding the variable cost per unit ($6) and the contribution margin per unit ($4).

Assume Total Fixed Costs of $160,000, Variable Costs Per Unit