Question

Bloom Company management predicts that it will incur fixed costs of $251,000 and earn pretax income of $365,100 in the next period. Its expected contribution margin ratio is 61%. Required: 1. Compute the amount of total dollar sales. 2. Compute the amount of total variable costs

Answer 1

Answer and Explanation:

The computation is shown below;

a. The amount of the total dollar sales is

Pretax income  = Sales value - Variable cost - Fixed cost

where,  

Sales value - variable cost = Contribution margin

$365,100  = Contribution margin - $251,000          

So,  

Contribution margin = $616,100

Now  

Contribution margin = Sales value × Contribution margin ratio

$616,100 = Sales value ×  61%

So,

Sales value = $1,010,000

b. The total variable cost is

= Sales - fixed cost - pre tax income

= $1,010,000 - $251,000 - $365,100

= $393,900