Asked by Morgan Burroughs on Jul 06, 2024
Verified
If variable costs per unit are 70% of sales fixed costs are $290000 and target net income is $70000 required sales are $1200000.
Variable Costs
Expenses that vary directly with the amount of production or the degree of business operations.
Fixed Costs
Expenses that do not change with the level of production or sales over a certain period, such as rent or salaries.
Target Net Income
The income objective set by management.
- Analyze the impact of sales levels on total costs, variable costs, fixed costs, and net income.
Verified Answer
ZK
Zybrea KnightJul 09, 2024
Final Answer :
True
Explanation :
We can use the contribution margin ratio formula to solve for the required sales:
Contribution Margin Ratio = (Sales - Variable Costs) / Sales
We know that variable costs per unit are 70% of sales, so the contribution margin ratio is 0.3 (1 - 0.7). We also know that the company has a target net income of $70,000 and fixed costs of $290,000. Using the formula for target net income, we can set up the equation:
Target Net Income = (Sales - Variable Costs - Fixed Costs)
$70,000 = (S - 0.7S - $290,000)
$360,000 = 0.3S
S = $1,200,000
Therefore, the required sales to achieve the target net income are $1,200,000, which matches the given information.
Contribution Margin Ratio = (Sales - Variable Costs) / Sales
We know that variable costs per unit are 70% of sales, so the contribution margin ratio is 0.3 (1 - 0.7). We also know that the company has a target net income of $70,000 and fixed costs of $290,000. Using the formula for target net income, we can set up the equation:
Target Net Income = (Sales - Variable Costs - Fixed Costs)
$70,000 = (S - 0.7S - $290,000)
$360,000 = 0.3S
S = $1,200,000
Therefore, the required sales to achieve the target net income are $1,200,000, which matches the given information.
Learning Objectives
- Analyze the impact of sales levels on total costs, variable costs, fixed costs, and net income.
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