Question

Exercise 18-14 Predicting sales and variable costs using contribution margin LO C2 Bloom Company management predicts that it will incur fixed costs of $160,000 and earn pretax income of $164,000 in the next period. Its expected contribution margin ratio is 25%. Required: 1. Compute the amount of total dollar sales. 2. Compute the amount of total variable costs.

Answer 1

Answer and Explanation:

The computation is shown below:

Contribution = Sales × Contribution percentage

And, pre tax Income = Contribution - Fixed cost

And we know that

Sales = [Fixed cost+ pre tax income] ÷ Contribution margin

= [$160,000 + $164,000 ] ÷ 25%

= $1,296,000

Now the amount of total variable cost is

2. As we know that

The Variable cost is

= Sales - Contribution margin

= Sales - sales × 25%

= Sales × 75%

= $1,296,000 × 75%

= $972,000