Question

Drenning Manufacturing produces flooring material. The monthly fixed costs are $10,000 per month. The unit sales price is $75, and variable cost per unit is $35. Drenning wishes to earn an operating income of $25,000. Using the contribution margin ratio, calculate the total sales revenue that is needed. (Round intermediate calculations to five decimal places.)

Answer 1

Total Sales needed is $65,629

Step-by-step explanation:

Contribution margin ratio is the ratio of selling price less variable cost to sale price. It is the total earning available to cover the fixed costs and after that making profits.

Sale price = $75

Variable cost = $35

Contribution margin = $75-$35 = $40

Fixed Cost = $10,000

Contribution margin ratio = 40 / 75 = 0.5333

Target profit = $25,000

Target sales = ( Desired profit + Fixed cost ) / Contribution margin ratio

Target sales = ( $25,000 + $10,000 ) / 0.5333

Target sales = $65,629