Determine level of sales to achieve- interest expense given

Question

Hebner Housing Corporation consist of forecast the given numbers for the upcoming year as follows:

• Net income = 180,000.

• Sales = $1,000,000.

• Interest expense = 100,000.

• Cost of goods sold = 600,000.

The company is in the 40 percent tax bracket, and cost of goods sold of it always shows 60 percent of its sales.

The CEO of company is unhappy along with the forecast and need the firm to achieve a net income equivalent to $240,000. Interest expense that is assuming is unchanged, what level of sales will the company have to achieve?

Answer 1

This question needs working backwards by the income statement from net income to sales. Therefore, income statement will look as this given below:

 Sales             $   1,250,000                 $500,000/(1 - 0.6)

CGS (60%)             750,000                  $1,250,000 × 0.6

EBIT               $     500,000                  $100,000 + $400,000

Interest                 100,000                     (specified)

EBT                $     400,000                     $240,000/(1 - 0.4)

Tax (40%)             160,000 

NI                 $      240,000