Answer (D) is correct . Carson’s unit contribution margin is $25 ($100 selling price – $75 unit variable cost). Treating desired after-tax profit as an additional fixed cost allows the target unit sales to be calculated as follows: Target unit sales = {Fixed costs + [Target net income ÷ (1.0 – .35)]} ÷ UCM = [$250,000 + ($1,300,000 ÷ .65)] ÷ $25 = ($250,000 + $2,000,000) ÷ $25 = 90,000
Answer (A) is incorrect because This figure results from failing to consider the effect of income taxes.
Answer (B) is incorrect because This figure results from dividing the target net income by a unit contribution margin that has been divided by (1 + tax rate).
Answer (C) is incorrect because This figure results from failing to include fixed costs.
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If Carson wants to achieve a net income of $1,300,000 next year, its sales must be