Answer
This question tests your understanding about the adjustment of tax in CVP analysis. Pay attention to the question and note that Net Income (after tax) is provided. Therefore, you are required to work backwards (gross-up) and find out before-tax amount after adjusting tax as follows;
Work Step by Step
To find out the number of cars to be sold to achieve net income (after tax ) of $51,000, we need to find out the target contribution margin by working backwards as follows;
Target Net income (after tax) - given 51,000
Tax rate (40%)
Target net income (before tax) = (51,000 / (100% - 40%) = 85,000
add back: fixed costs (from the answer of 3-21(1) part) = 129,200
Target contribution margin = 214,200 (85,000 + 129,200)
