Question

The managerial accountant at Donuts Galore needs to compute the target operating income to determine how much would need to be sold to earn a target net income of $900, assuming a 40% tax rate. To earn a target net income of $900, what is the target operating income?

Answer 1

Answer:

$1500

Explanation:

Targeted Income after tax is $900

Tax rate is 40%

Income before tax = $900/(1-0.4) = $1500

Answer 2

Answer:

To earn a target net income of $900,  the target operating income must be $ 1500.

Explanation:

Target Net Income = Target Operating Income ( 1- Tax Rate)

Target Operating Income = Target Net Income/ 1- Tax Rate

Target Operating Income= $900/ 1- 40%

Target Operating Income=  $900/ 1-0.4

Target Operating Income=$900/0.6

Target Operating Income= $ 1500

To earn a target net income of $900, the target operating income must be

$ 1500

Target Income Sales in Dollars = Target Income Sales in Units *Price per Unit