Answer (B) is correct . Zipper can calculate its target sales figure as follows: ? Contribution margin – Fixed costs = Operating income Sales – Variable costs – Fixed costs = Return on investment ÷ (1.0 – tax rate) Sales – .3Sales – $600,000 = .08($300,000) ÷ (1.0 – .40) .7Sales – $600,000 = $24,000 ÷ .60 .7Sales = $640,000 Sales = $914,286
Answer (A) is incorrect because The amount of $891,429 results from setting operating income, rather than net income, to the target return on investment.
Answer (C) is incorrect because The amount of $2,080,000 results from setting operating income, rather than net income, to the target return on investment and reversing the variable cost ratio.
Answer (D) is incorrect because The amount of $2,133,333 results from reversing the variable cost ratio.
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