Asked by Alejandro Arias on Jun 28, 2024
Verified
To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used?
A) (Fixed expenses + Target net profit) /Total contribution margin
B) (Fixed expenses + Target net profit) /Contribution margin ratio
C) Fixed expenses/Contribution margin per unit
D) Target net profit/Contribution margin ratio
Contribution Margin Ratio
The proportion of sales revenue that remains after variable costs are subtracted, expressed as a percentage, indicating the contribution towards covering fixed costs and generating profit.
Fixed Expenses
Costs that do not change in total despite changes in the level of business activity or production volume, such as rent or salaries.
Target Net Profit
A financial objective set by a business indicating the desired bottom-line income after all expenses, interest, and taxes have been deducted from total revenues.
- Utilize break-even analysis across various situations to evaluate the economic feasibility of decisions.
Verified Answer
JB
JUSTIN BRANCHJun 28, 2024
Final Answer :
B
Explanation :
The formula for calculating the dollar sales volume necessary to attain a given target profit is (fixed expenses + target net profit)/contribution margin ratio. This formula takes into account both the fixed expenses and the contribution margin ratio, which represents the portion of each unit sale that is available to cover fixed expenses and contribute to profit. By dividing the total fixed expenses and target net profit by the contribution margin ratio, the formula returns the total dollar sales volume necessary to achieve the desired profit level.
Learning Objectives
- Utilize break-even analysis across various situations to evaluate the economic feasibility of decisions.