Question

A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of sales must the company make (rounded to the nearest whole dollar)?

Answer 1

Answer:

Company must make sales of $600,000.

Explanation:

Compute the contribution margin of the company:

Contribution margin=Pre−Tax Income+Fixed Cost

=$60,000+$270,000

=$330,000

Thus, the contribution margin is $330,000. It is computed by summing up the fixed cost and the pre-tax income of the company.

Compute the total sales of the company:

Contribution margin ratio=  Contribution margin  / Sales  

55%=  $330,000/ Sales

Sales=  $55%  / $330,000 ​  

=$600,000    

The sales of the company are $600,000.