What Are Rice Company's Total Sales for Desired After-Tax Profit?

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Homework Help Overview

The problem involves calculating the total sales required for Rice Company to achieve a desired after-tax profit of $84,000, given a break-even sales figure and a contribution margin ratio. The context is rooted in finance and accounting principles.

Discussion Character

  • Exploratory, Mathematical reasoning, Assumption checking

Approaches and Questions Raised

  • Participants discuss the relationship between sales, fixed costs, variable costs, and gross profit. There are attempts to derive the necessary sales figure using the contribution margin ratio and the break-even point. Some participants express uncertainty about their calculations and question the correctness of their answers.

Discussion Status

The discussion includes various interpretations of the problem and attempts to clarify the calculations involved. Some participants have provided detailed reasoning, while others express confusion about the multiple-choice options. There is no explicit consensus on the correct answer, but some productive lines of reasoning have emerged.

Contextual Notes

Participants note the constraints of the multiple-choice format and the potential for missing information that could affect the calculations. The urgency of an upcoming test adds to the pressure of understanding the problem.

aisha
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the break-even point in sales for Rice Company is $360000, and the company's contribution margin ratio is 20%. Its income tax rate is 40%. If Rice Company desires an after-tax profit of $84000, what would the total sales have to be?

PLZ HELP ME!

A)1050360
B)1060000
C)780000
D)Cannot be determined w/o additional info

The answer me and my friend is getting is something like 106000 one zero is missing for some reason
 
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My answer is not the four above. Am I wrong? Not the one you mentioned either.
 
primarygun said:
My answer is not the four above. Am I wrong? Not the one you mentioned either.


The correct answer is b but since it is a multiple choice question, we are not sure how to get the answer.
 
Can Someone Please Explain This Question If They Know How To Do It. Test Tomorrow!
 
Since this is finance/accounting, I may be missing something here.

The net profit after taxes is $84,000, which represents 0.6 or 60 % of the gross profit before taxes.

So the gross profit (GP) before taxes is $140,000 = $84,000/0.6. Now to get the gross profit, I believe that is just revenue from sales minus the costs.

Sales - Costs = GP

The variable costs VC are given by the relationship:

Contribution Margin Ratio = (Sales - VC)/Sales = 0.2
which means VC = 0.8 Sales

Now you need to find the Fixed Costs. So from the above formula,

GP = Sales - FC - VC.

At breakeven GP=0 (so no taxes). And the problem states that Sales at breakeven is $360,000, so

0 = $360,000 - FC - 0.8 ($360,000).

So FC = $72,000

Now FC is known, so returning to sales needed to get net profit after taxes of $84,000,

Sales (Income) - Fixed Costs - Variables Costs = $140,000

Sales - $72,000 - 0.8 Sales = $140,000, which simplifies to
0.8 Sales = $212,000 or

Sales = $212,000/0.8 = $1,060,000
 
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Oops, noticed an error.

Sales - $72,000 - 0.8 Sales = $140,000, which simplifies to

0.2 Sales = $212,000 or

Sales = $212,000/0.2 = $1,060,000

Hopefully that was obvious.
 
Thanks for all your Help! :smile: