# Target operating income no tax using the contribution

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Target Operating Income – No Tax Using the Contribution Margin Approach and the Vargo Video Data: ° Formula for required sales in units: (Fixed Costs + Target Operating Income) / Contribution Margin per unit = Required Sales in Units (\$200,000 + \$120,000) / \$200 = 1,600 units ° Formula for required sales in dollars: (Fixed Costs + Target Operating Income) / Contribution Margin ratio = Required Sales in Dollars (\$200,000 + \$120,000) / 40% = \$800,000 dollars
DeGrooteSchool.ca Target Operating Income – After-tax Note, Operating income after tax = Operating income before tax x (1 - tax rate) Formula for required sales in units: (Fixed Costs + Target After-tax Op. Inc.) / Contribution Margin per unit = Required Sales in Units (\$200,000 + \$120,000 / (1-0.4)) / \$200 = 2,000 units Formula for required sales in dollars: (Fixed Costs + Target After-tax Op. Inc.) / Contribution Margin ratio = Required Sales in Dollars (\$200,000 + \$120,000 / (1-0.4)) / 40% = \$1,000,000 dollars
DeGrooteSchool.ca Margin of Safety – in Dollars Difference between actual or expected sales and sales at the break-even point May be expressed in dollars or as a ratio ± Example: ± To determine the margin of safety in dollars for Vargo Video, assuming that actual (expected) sales are \$750,000 Actual ( or Expected Sales) – Break-even Sales = Margin of Safety in Dollars \$750,000 - \$500,000 = \$250,000
DeGrooteSchool.ca Margin of Safety – as Ratio ° Calculated by dividing the margin of safety in dollars by the actual or expected sales (using Vargo Video data)

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