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17 July, 16:08

Robin Company wants to earn a 6% return on sales after taxes. The company's effective income tax rate is 40%, and its contribution margin is 30%. If Robin has fixed costs of $240,000, the amount of sales required to earn the desired return is

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  1. 17 July, 19:02
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    Answer is 1,200,000

    Explanation:

    return on sales after taxes = 6%

    effective income tax rate = 40%, contribution margin = 30%.

    Robin has fixed costs = $240,000,

    We are to find the amount of sales required to earn the desired return using the information above.

    Profit = Contribution - Fixed Cost

    Assuming sales = K

    6 / (100-40) K = (30/100) K - 240,000

    0.1K = 0.3K - 240,000

    0.2K = 240,000

    K = 240,000/0.2

    so K = 1,200,000.
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