Question

If fixed costs were increased by $9,000 and the contribution margin ratio remained at 30%, then sales must increase by what in order to cover the additional fixed expenses?

a) 27,000
b) 30,000
c) 33,000
d) 54,000

Answer 1

Sales must increase by $30,000 in order to cover the additional fixed expenses.

Step-by-step explanation:

To determine how much sales must increase in order to cover the additional fixed expenses, we need to use the contribution margin ratio. The contribution margin ratio is the percentage of each sales dollar that remains after variable costs are deducted. In this case, the contribution margin ratio is 30%.

Let's calculate the sales needed to cover the increased fixed expenses.

First, find the increase in fixed expenses which is $9,000.

Next, divide the increase in fixed expenses by the contribution margin ratio:

$9,000 / 0.30 = $30,000

Therefore, sales must increase by $30,000 in order to cover the additional fixed expenses.