Question

A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of sales must the company make (rounded to the nearest whole dollar)?

Answer 1

Company must make sales of $600,000.

Step-by-step explanation:

Compute the contribution margin of the company:

Contribution margin=Pre−Tax Income+Fixed Cost

=$60,000+$270,000

=$330,000

Thus, the contribution margin is $330,000. It is computed by summing up the fixed cost and the pre-tax income of the company.

Compute the total sales of the company:

Contribution margin ratio= Contribution margin / Sales

55%= $330,000/ Sales

Sales= $55% / $330,000 ​

=$600,000

The sales of the company are $600,000.