Question

If the contribution margin ratio is​ 60%, target operating income is​ $50,000, and the sales revenue needed to achieve the target operating income is​ $800,000, what are total fixed​ expenses?

Answer 1

The correct answer is $430,000.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Contribution margin ratio = 60%

Operating income = $50,000

sales revenue = $800,000

So, we can calculate the total fixed expenses by using following formula:

Total fixed expenses = Contribution Margin - Operating income

Where, Contribution margin = Contribution margin ratio × sales

Contribution margin = .60 × $800,000 = $480,000

So, by putting the value in the formula, we get,

Total fixed expenses = $480,000 - $50,000

= $430,000