Question

Watson Company has monthly fixed costs of $84,000 and a 50% contribution margin ratio. If the company has set a target monthly income of $15,100, what dollar amount of sales must be made to produce the target income? a. $198.200 b. $99100 c. $168,000 d. $30.200 e. $137800

Answer 1

Answer:

a. $198.200

Explanation:

Income is defined as the difference between total sales and total expenses. Expenses encompass both fixed and variable costs.

The contribution margin ratio is defined as:

$CMR=\frac{sales-variable\ costs}{sales}$

Therefore, the dollar amount of sales required to obtain an income of $15,100 is:

$15,100 = Sales - FC - VC\\0.5*Sales = Sales -VC\\15,100 = 0.5*Sales - 84,000\\Sales = \ 198,200$

The dollar amount of sales must be $198,200