If Dorian Company desires a monthly net income equal to 10% of sales,monthly sales will have to be:

Question

Quizplus · Accepted Answer

We can use the formula: 
Net Income = Sales x (1 - Expense Ratio)
where Expense Ratio = 1 - Desired Net Income Ratio

Since Dorian Company desires a net income equal to 10% of sales, the Desired Net Income Ratio is 0.10. Therefore, the Expense Ratio is 1 - 0.10 = 0.90.

So, we have: 
Net Income = Sales x 0.10
and 
Sales = Net Income / 0.10

If we plug in the desired monthly net income into the formula, we get: 
Sales = $9,600 / 0.10 = $96,000

Therefore, the monthly sales needed to achieve a monthly net income equal to 10% of sales is $96,000.

If Dorian Company Desires a Monthly Net Income Equal to 10