Question

Fern,Inc.has fixed costs of $400,000 and a contribution margin ratio of 30%.How much sales revenue must be earned for a profit of $80,000?
A) $144,000
B) $336,000
C) $1,600,000
D) $1,920,000

Answer 1

Answer:

The correct option is C) $1,600,000.

Explanation:

This can be calculated using the following formula:

Sales revenue required = (Fixed cost + Targeted profit) / Contribution margin ratio .......................... (1)

Where;

Fixed costs = $400,000

Contribution margin ratio = 30%

Targeted profit = $80,000

Substituting the values into equation (1) we have:

Sales revenue required = ($400,000 + $80,000) / 30%

Sales revenue required = $480,000 / 30%

Sales revenue required = $1,600,000

Therefore, the correct option is C) $1,600,000.