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) ?

Question

Business

Maribel Frank

15 January, 12:33

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) ?

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Answers (1)

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Elena Kim · Answer 1

Company must make sales of $600,000.

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.