Question

Alafaya has a sales forecast of $10 million and has set a goal to earn $4,320,000...

Alafaya has a sales forecast of $10 million and has set a goal to earn $4,320,000 in net income in the coming year. The firm manufactures heat resistant components for gas turbine engines that sell for $5,000 each. This firm has a 60% contribution margin, a 21% tax rate, and no outstanding debt. What will be the fixed costs in the next year should the firm reach its goal?

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Answer #1

Solution

Sales revenue= 10000000

Net income= 4320000

Net income= Gross income- tax

Net income= Gross income- (.21*Gross income)

.79* Gross income= Net income

.79*Gross income=4320000

Gross income= 5468354

Contribution margin ratio= (Total revenue- Variable costs)/Total revenue

Contribution margin=.6

.6= (10000000-Variable cost)/10000000

6000000=10000000-Variable cost

Variable cost = 4000000

Gross income= Revenue- (Variable cost+ fixed cost)

5468354= 10000000-4000000-fixed cost

Fixed cost= 531645.57

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