Question

A company currently needs sales revenue of $350,000 to earn after-tax income of $68,000. If the income tax rate increases, what will happen to the sales revenue needed to earn after-tax income of $68,000?

Revenue will increase.
Revenue will decrease.
Revenue will remain constant.
Variable costs will increase.

Answer 1

When the income tax rate increases, the sales revenue needed to earn a specific after-tax income will increase.

Step-by-step explanation:

When the income tax rate increases, the amount of sales revenue needed to earn a specific after-tax income will increase.

This is because a higher tax rate means the company will have to pay a larger portion of their revenue as taxes, leaving less money available as after-tax income.