Question

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals Blank______.

Multiple choice question.

$1,364,000


$2,200,000


$913,880


$3,000,000

Answer 1

To calculate the sales dollars needed to reach the target profit, you can use the following formula:

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

Given:
- Fixed Costs = $564,000
- Target Profit = $800,000
- Contribution Margin Ratio = 62% = 0.62

Plug the values into the formula:

\[
\text{Sales} = \frac{564,000 + 800,000}{0.62}
\]

Calculating the numerator:

\[
564,000 + 800,000 = 1,364,000
\]

Now, divide by the contribution margin ratio:

\[
\text{Sales} = \frac{1,364,000}{0.62} \approx 2,200,000
\]

Therefore, the sales dollars needed to reach the target profit is:

\[
\boxed{2,200,000}
\]