Question

Richard is evaluating some of last year's manufacturing costs for his business, Work It Out, which creates custom-fit exercise equipment for high-end clients. He is trying to strengthen his own analytical skills by looking at some of the total cost amounts and working backward to make sure he can find the detailed amounts that comprised these totals. Last year's manufacturing costs are as follows. θ Your answer is incorrect. Given the company's goal to generate a 65% gross margin on these products, how much revenue did the company need to earn on its COGS of $685,500 ? (Round answer to 2 decimal places, e.g. 5,275.25.) Sales revenue

Answer 1

The company needed to earn approximately $1,958,571.43 in sales revenue to achieve a 65% gross margin on its COGS of $685,500.

Step-by-step explanation:

To determine the amount of revenue needed for a business to achieve a certain gross margin on its cost of goods sold (COGS), you must divide the COGS by one minus the gross margin percentage. In this case, Work It Out requires a 65% gross margin on its products.

To calculate the necessary revenue, we use the formula:

Revenue = COGS / (1 - Gross Margin)

Plugging in the numbers:

Revenue = $685,500 / (1 - 0.65)

Revenue = $685,500 / 0.35

Revenue = $1,958,571.43

Therefore, Work It Out needed to earn approximately $1,958,571.43 in sales revenue to achieve the 65% gross margin on its COGS of $685,500.