The managerial accountant at Donuts Galore needs to compute the target operating income to determine how much would need to be sold to earn a target net income of $900, assuming a 40% tax rate. To earn a target net income of $900, what is the target operating income?

To earn a target net income of $900, the target operating income must be $ 1500.

Explanation:

Target Net Income = Target Operating Income (1 - Tax Rate)

Target Operating Income = Target Net Income / 1 - Tax Rate

Target Operating Income = $900 / 1 - 40%

Target Operating Income = $900 / 1-0.4

Target Operating Income=$900/0.6

Target Operating Income = $ 1500

To earn a target net income of $900, the target operating income must be

$ 1500

Target Income Sales in Dollars = Target Income Sales in Units * Price per Unit