The break-even point in sales for Rice Company is $360,000,and the company's contribution margin ratio is 20%.Its income tax rate is 40%.If Rice Company desires an after-tax operating profit of $84,000,what would total sales have to be?

Question

Quizplus · Accepted Answer

To achieve an after-tax operating profit of $84,000 with a tax rate of 40%, the before-tax profit needs to be $84,000 / (1 - 0.40) = $140,000. To find the total sales required, add the break-even sales ($360,000) to the additional sales needed to achieve the before-tax profit. The additional sales needed are $140,000 / 0.20 (contribution margin ratio) = $700,000. Therefore, total sales required = $360,000 (break-even sales) + $700,000 (additional sales) = $1,060,000.

The Break-Even Point in Sales for Rice Company Is $360,000,and