Question

Company a has fixed costs of $564,000 and has set a target profit of $800,000. if company a has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ___.

A. $3,000,000
B. $1,364,000
C. $2,200,000
D. $913,880

Answer 1

To determine the sales dollars needed to reach the target profit for Company A, one can use the formula: Target Sales = (Fixed Costs + Target Profit) / Contribution Margin Ratio, which yields a result of $2,200,000 in required sales.

Step-by-step explanation:

The student's question concerns calculating the sales dollars needed to reach the target profit for Company A. Given the fixed costs of $564,000, the target profit of $800,000, and the contribution margin ratio of 62%, we can calculate the required sales.

The formula to calculate the target sales is: Target Sales = (Fixed Costs + Target Profit) / Contribution Margin Ratio.

Plugging in the values:

Target Sales = ($564,000 + $800,000) / 0.62
Target Sales = $1,364,000 / 0.62
Target Sales = $2,200,000

This is the amount of sales dollars Company A needs to generate to achieve its target profit, considering its fixed costs and contribution margin ratio.