Question

For Wildhorse Company, variable costs are 75% of sales, and fixed costs are $210,000. Management's net income goal is $60,000.

Compute the required sales needed to achieve management's target net income of $60,000.

Answer 1

Wildhorse Company needs $1,080,000 in sales to achieve its target net income of $60,000 by dividing the sum of fixed costs and net income goal by the contribution margin per dollar of sales.

Step-by-step explanation:

To calculate the required sales needed to achieve Wildhorse Company's target net income of $60,000, we can use the contribution margin approach. Since variable costs are 75% of sales, the contribution margin per dollar of sales is 1 - 0.75 = 0.25 or 25%. To cover the fixed costs and achieve the net income goal, the total contribution margin needed is $210,000 (fixed costs) + $60,000 (net income goal) = $270,000. To find the required sales, we divide the total contribution margin needed by the contribution margin per dollar of sales: $270,000 / 0.25 = $1,080,000. Hence, Wildhorse Company requires $1,080,000 in sales to meet its net income goal of $60,000.