Question

Cartoon Cakes has $401,000 of fixed costs per year. The contribution margin ratio is 59%. What amount of sales dollars is required if the company has set a target profit of $720,000 this year?

Answer 1

Cartoon Cakes requires $1,900,000 in sales to achieve the target profit of $720,000 for the year, taking into account the $401,000 of fixed costs and a contribution margin ratio of 59%.

Step-by-step explanation:

To determine the amount of sales dollars required for Cartoon Cakes to achieve a target profit of $720,000 this year, given that the fixed costs are $401,000 and the contribution margin ratio is 59%, we can use the following formula:

Required Sales = (Fixed Costs + Target Profit) / Contribution Margin Ratio

First, we add the fixed costs to the target profit:

Total Needed Contribution Margin = Fixed Costs + Target Profit

= $401,000 + $720,000

= $1,121,000

Then, we divide the total needed contribution margin by the contribution margin ratio:

Required Sales = $1,121,000 / 0.59

= $1,900,000

So, Cartoon Cakes would need $1,900,000 in sales to meet the target profit of $720,000.