Question

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total Blank______.

Multiple choice question.

$1,170,000


$760,500


$1,200,000


$1,800,000

Answer 1

To determine the sales dollars needed to earn the target profit, you can use the following formula:

\[
\text{Sales} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{Contribution Margin Ratio}}
\]

Given:
- Target Profit = $975,000
- Fixed Costs = $195,000
- Contribution Margin Ratio = 65% (or 0.65)

Now, substituting the values into the formula:

\[
\text{Sales} = \frac{195,000 + 975,000}{0.65}
\]

Calculating the total:

\[
\text{Sales} = \frac{1,170,000}{0.65}
\]

\[
\text{Sales} = 1,800,000
\]

Therefore, the sales dollars needed to earn the target profit total **$1,800,000**.

The correct answer is **$1,800,000**.