Answer (A) is correct . Oradell’s contribution margin ratio (CMR) is 33.3% [($60 selling price – $40 unit variable cost) ÷ $60 selling price]. Treating desired after-tax profit as an additional fixed cost allows the target unit sales to be calculated as follows: Target dollar sales = {Fixed costs + [Target net income ÷ (1.0 – .30)]} ÷ CMR = [$880,000 + ($224,000 ÷ .70)] ÷ .33333333 = ($880,000 + $320,000) ÷ .33333333 = $3,600,000 At a selling price of $60 each, the total revenue is $3,600,000 (60,000 units × $60).
Answer (B) is incorrect because This amount is the annual sales revenue that results when the $96,000 of income tax is ignored.
Answer (C) is incorrect because This amount is the annual sales revenue when the $96,000 of income tax is ignored and the sum of the fixed costs and net income ($1,104,000 = $880,000 fixed costs + $224,000 net income) is divided by the variable unit cost of $40 (instead of the contribution margin of $20).
Answer (D) is incorrect because This amount is the annual sales revenue when the $96,000 of income is subtracted from (instead of added to) the $224,000.
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Oradell’s annual fixed costs are $880,000, and Oradell is subject to a 30% income tax rate.The annual sales revenue required by Oradell Company in order to achieve after-tax net income of $224,000 for the year is The annual sales revenue required by Oradell Company in order to achieve after-tax net income of $224,000 for the year is