If the target net income is $36000 and the tax rate is 40%, then the target operating income will be __________?
Correct answer: D. $60,000
- A. $10,000
- B. $20,000
- C. $40,000
- D. $60,000
Explanation
Operating income before tax must be grossed up from after-tax income: $36,000 ÷ (1 − 0.40) = $60,000. Applying the tax rate directly to $36,000 would incorrectly treat net income as pre-tax income.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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