Answer (D) is correct . Robin can calculate its target sales figure as follows: Net income = Operating income – (Operating income × Tax rate) .06Sales = .3Sales – $240,000 – [(.3Sales – $240,000) × .40] .06Sales = .3Sales – $240,000 – .12Sales + $96,000 –.12Sales = –$144,000 Sales = $1,200,000
Answer (A) is incorrect because The amount of $375,000 results from using the variable cost ratio instead of the contribution margin ratio and ignoring the effects of income taxes.
Answer (B) is incorrect because The amount of $400,000 results from using the variable cost ratio instead of the contribution margin ratio.
Answer (C) is incorrect because The amount of $1,000,000 results from ignoring the effects of income taxes.
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