Question

11. Brooke Company desires net income of $720,000 when it has $2,000,000 of fixed costs and variable costs of 60% of sales. Contribution margin equals a. $6,800,000. b. $2,720,000. c. $1,280,000. d. $1,200,000.

Answer 1

Answer:

b. $2,720,000

Explanation:

The contribution margin is what is left after subtracting the variable cost from the sales.

From there, the company pays their fixed cost and the rest is net income.

In this case you have a company desiring to get 720,000 net income after paying their 2,000,000 fixed cost

So we come up with with formula:

$Contribution Margin - Fixed Cost = Net Income$

Replacing the know values, we get the unknow value. Like it was a solve for X question:

$X - 2,000,000 = 720,000\\X = 2,000,000 + 720,000\\X = 2,720,000$