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2 September, 00:39

Kreter, Inc. earned net income of $300,000 last year. This year it wants to earn net income of $450,000. The company's fixed costs are expected to be $300,000, and variable costs are expected to be 70% of sales. Determine the required sales to meet the target net income of $450,000 using the mathematical equation.

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  1. 2 September, 00:50
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    sales is $2,500,000

    Explanation:

    The target sales for the company to achieve a net income of $450,000 in the current year equals the net income plus variable cost plus the fixed costs.

    To understand this better, let us use the net income formula:

    net income=sales-variable costs-fixed costs

    by changing the subject of the formula, we the formula for sales:

    sales=net income+variable costs+fixed costs

    variable costs=sales*70%=0.7 sales

    sales=$450,000+$300,000+0.7 sales

    sales-0.7 sales=$750,000

    0.3 sales=$750,000

    sales=$750,000/0.3=$2,500,000
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