Gordon Manufacturing earned net income of $100,000 during 2015. The company wants to earn net income of $40,000 more during 2016. The company's fixed costs are expected to be $147,000, and variable costs are expected to be 30% of sales.

Required:

Determine the required sales to meet the target net income during 2016.

Question

Business

Westie

5 April, 00:07

Gordon Manufacturing earned net income of $100,000 during 2015. The company wants to earn net income of $40,000 more during 2016. The company's fixed costs are expected to be $147,000, and variable costs are expected to be 30% of sales.

Required:

Determine the required sales to meet the target net income during 2016.

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Answers (1)

Know the Answer?

Kenzie Stokes · Answer 1

Required Sale is $410,000

Explanation:

First we have to determine the target profit.

Desired Profit = $100,000 + $40,000 = $140,000

As we know that the selling price is the sum of variable cost and contribution margin, so,

Sales = Variable cost ratio + Contribution margin ratio

100$ = 30% = Contribution margin ratio

Contribution margin ratio = 100% - 30% = 70%

Formula for target sales is as follow

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

Target Sales = ($147,000 + $140,000) / 70% = $410,000