Question

Bloom Company management predicts that it will incur fixed costs of $266,000 and earn pretax income of $360,400 in the next period. Its expected contribution margin ratio is 54%. Required: 1. Compute the amount of total dollar sales. 2. Compute the amount of total variable costs.

Answer 1

Answer:

1. $1,160,000

2. $534,600

Explanation:

1. Computation for the amount of total dollar sales

Using this formula

Total dollar sales=Fixed costs plus pretax income / Contribution margin ratio

Let plug in the formula

Total dollar sales=$626,400 / 54%

Total dollar sales =$1,160,000

($266,000+$360,400=$626,400)

Therefore the amount of total dollar sales is $1,160,000

2.Computation for the amount of total variable costs.

Sales $1,160,000

Less:

Fixed costs ($265,000)

Pretax income ($360,400)

Variable costs $534,600

Therefore the amount of total variable costs is $534,600