Question

An entertainment company has a net income goal of $19000/month. sales are currently $600,000 annually and fixed cost run $95000 each year. the compnay has launched a new campaign that is expected to cost $9000 monthly and bring in a additional 20% in annual sales. after the launch of brand cam[paign, what contribution margin percent is required to hit the companys income goal?

Answer 1

To hit the company's income goal after the launch of the new campaign, a contribution margin percentage greater than 100% would be required, which is not feasible.

Step-by-step explanation:

To calculate the contribution margin percentage needed to hit the company's income goal, we need to first calculate the current net income and the net income after the launch of the new campaign.

Currently, the company's annual sales are $600,000 and fixed costs are $95,000. Therefore, the current net income is $600,000 - $95,000 = $505,000.

After the launch of the new campaign, the annual sales are expected to increase by 20%, which means the new annual sales will be $600,000 + ($600,000 * 0.20) = $720,000. The additional monthly cost of the new campaign is $9,000.

To calculate the required contribution margin percentage, we can use the following formula:

Contribution Margin Percentage = (Net Income Goal - Fixed Costs - Additional Monthly Cost of New Campaign) / New Annual Sales

Substituting the values, we get:

Contribution Margin Percentage = ($19,000 - $95,000 - $9,000) / $720,000

Contribution Margin Percentage = $-85,000 / $720,000

Contribution Margin Percentage = -0.1181

To hit the company's income goal, a negative contribution margin percentage is not possible. It is important to note that in this case, the company would need a contribution margin percentage greater than 100% to achieve the income goal, which is not feasible.