Question

The contribution margin ratio is 20% for Crowne Company and the break-even point in sales is $290,000. If Crowne Company's target operating profit is $69,000, sales would have to be:

Answer 1

First, we need to calculate the contribution margin:

Contribution margin = Sales x Contribution margin ratio

Contribution margin = Sales x 0.2

We also know that the break-even point is $290,000, which means:

Contribution margin = Fixed costs + Operating profit

Contribution margin = $290,000 + $69,000

Contribution margin = $359,000

Now we can set up the equation to solve for sales:

Sales x 0.2 = $359,000

Sales = $359,000 / 0.2

Sales = $1,795,000

Therefore, Crowne Company would have to generate $1,795,000 in sales to achieve a target operating profit of $69,000 with a contribution margin ratio of 20%.