Question

Raines company's sales are $750,000 with operating profits of $130,000. if the contribution margin ratio is 40%, what did the fixed costs amount to?

Answer 1

Fixed costs for Raines Company amount to $320,000, calculated based on the provided sales data, contribution margin ratio, and operating profits.

Step-by-step explanation:

The student's question involves calculating the fixed costs based on the contribution margin ratio, sales, and operating profits. To find the fixed costs, we start with the formula for operating profit, which is: operating profit = sales minus variable costs minus fixed costs. With the contribution margin ratio given as 40%, we can calculate the variable costs as 40% of sales, or 0.40 x $750,000 = $300,000. Subtracting the variable costs from sales gives us the contribution margin (sales minus variable costs), which is $750,000 minus $300,000 = $450,000. Next, we subtract the operating profit from the contribution margin (contribution margin minus operating profit) to find the fixed costs: $450,000 minus $130,000 = $320,000.

Answer 2

Raines company's, having reported gross sales of $750,000, with net profits of $130,000, and a 40% contribution margin ratio (equaling $300,000), subsequently had fixed costs of $320,000.