How Much Sales Are Required to Earn a Target Income

question 127

Multiple Choice

How much sales are required to earn a target income of $80,000 if total fixed costs are $100,000 and the contribution margin ratio is 40%?

• A) $300,000
• B) $200,000
• C) $450,000
• D) $330,000

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Definitions:

Tax Benefit

A reduction in tax liability achieved through claiming allowable deductions such as expenses, exemptions, and credits.

Financial Distress

A situation where a company is unable to meet its financial obligations, which can lead to bankruptcy if not addressed.

Homemade Leverage

A strategy where investors adjust the leverage in their own investment portfolio, rather than relying on the leverage employed by the companies in which they own shares.

Business Risk

The exposure a company has to factors that may lower its profits or lead to its failure.