Question

Bloom Company management predicts that it will incur fixed costs of $269,000 and earn pretax income of $337,900 in the next period. Its expected contribution margin ratio is 51%.
Required:
1. Compute the amount of total dollar sales.
2. Compute the amount of total variable costs

Answer 1

Answer:

1. $1,190,000

2. $583,100

Explanation:

1. Total dollar sales

First, we will get the value for contribution margin

Contribution margin - Fixed cost = Operating income

Contribution margin = Operating income + Fixed cost

Contribution margin = $337,900 + $269,000

Contribution margin = $606,900

The next step is to use contribution margin ratio to determine the sales

Contribution margin / Sales = Contribution margin ratio

606,900 / Sales = 0.51

Sales = 606,900 / 0.51

Sales = $1,190,000

2. Total variable cost

We will use the contribution margin to solve total variable cost

Sales - Variable cost = Contribution margin

$1,190,000 - Variable cost = $606,900

Variable cost = $1,190,000 - $606,900

Variable cost = $583,100