Question

At current sales revenue of $2,400, total variable costs are $960 and total fixed costs are $900. Your boss gave you a profit target of $1,800. How much do you need to sell in dollars to meet this profit target

Answer 1

$4,500

Step-by-step explanation:

Sales to reach target profit = (Fixed Cost + Target Profit) ÷ Contribution Margin Ratio

where,

Contribution Margin Ratio = Contribution ÷ Sales

= ($2,400 - $960) ÷ $2,400

= 0.60

therefore,

Sales to reach target profit = ($900 + $1,800) ÷ 0.60

= $4,500

Conclusion

You need $4,500 to meet this profit target