Hebner Housing Corporation has forecast the following numbers for this upcoming
ID: 2644843 • Letter: H
Question
Hebner Housing Corporation has forecast the following numbers for this upcoming year:
$1,000,000
600,000
100,000
180,000
The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company's sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000.The company's CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. Assume that Hebner's interest expense remains constant. In order to achieve this level of net income, what level of sales will the company have to achieve?
Sales$1,000,000
Cost of Goods Sold600,000
Interest Expense100,000
Net Income180,000
Explanation / Answer
In order to achieve a net income of $ 240,000, the following analysis are required:
Therefore, to earn a net income of $ 240,000, the Earning before tax & after interest would be:
=$240,000/60% = $400,000
i.e. = $400,000 + $100,000 = $500,000
4) Now the cost of goods sold represents 60% of the sales amount. Therefore, the gross represent
40% of the sales amount.
Sales Amount = $500,000/40% = $12,50,000
The revised income statement is:
Sales $12,50,000
Less: Cost of goods sold $750,000
Gross Profit $500,000
Less: Interest Expenses ($100,000)
Income before tax $400,000
Less: Taxes @ 40% ($160,000)
Net Income $240,000
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