Answer :
Answer:
Sales: 5,530,000
Explanation:
"Assume that operating costs (excluding depreciation and amortization) are 55% of sales"
This means Contribution Margin Ratio = (1 - 55%) = 45%
Depreciation and amortization = 320,000 + Δ11% = 355,200
Intrest Expense = 280,000 + Δ11% = 310,800
Net income after tax 1,093,500
Income before-tax X (1 - tax rate) = income after-tax
1,093,500/(1- 0.40) = 1,822,500 before-tax
With the contribution from sales, we have to:
- pay the fixed cost
- pay the interest
- achieve 1,822,500 before tax to reach the after tax expected gain
[tex]\frac{Fixed\:Cost + interest + target \: profit}{Contribution \:Margin \:Ratio} = Sales\: to\: Profit{dollars}[/tex]
(355,200+310,800+1,822,500)/0.45 =
2,488,500/.45 = 5,530,000
Answer:
5,530,000
Explanation:
Hermann Industries is forecasting the following income statement:
Sales $4,000,000
Operating costs excluding depreciation & amortization 2,200,000
EBITDA $1,800,000
Depreciation and amortization 320,000
EBIT $1,480,000 Interest 280,000
EBT $1,200,000
Taxes (40%) 480,000
Net income $720,000
The CEO would like to see higher sales and a forecasted net income of $1,093,500.
Assuming, operating costs (excluding depreciation and amortization) are 55% of sales and that depreciation and amortization and interest expenses will increase by 11%. The tax rate, which is 40%, will remain the same.
(Note that while the tax rate remains constant, the taxes paid will change.)
2,488,500/.45 = 5,530,000
Therefore, 5,530,000 is the level of sales that would generate $1,093,500 in net income.